05 Jan 2009
Jan. 5 (Bloomberg) -- Stocks in Europe and Asia extended their 2009 rally on speculation that government efforts to revive the global economy through tax cuts and spending will spur growth. U.S. futures drifted between gains and losses.Nestle SA and Nintendo Co., which both get more than 30 percent of sales from the Americas, gained at least 2 percent after officials and aides said President-elect Barack Obama may reduce taxes by more than $300 billion and Federal Reserve officials called for greater government spending to help revive the world's largest economy. Mizuho Financial Group Inc. soared 13 percent after the Sankei newspaper said Japan's government may buy nonperforming loans from banks.
Europe's Dow Jones Stoxx 600 Index climbed for a fifth straight day, adding 1.6 percent at 11:30 a.m. in London. The regional measure has rebounded 14 percent since Nov. 21 as Obama pledged to stimulate growth with the biggest infrastructure investment since the 1950s and the Fed cut interest rates to as low as zero percent. The MSCI Asia Pacific Index rallied for an eighth day, rising 1 percent.
"We expect a lot from Obama," said Emmanuel Soupre, a fund manager at Neuflize OBC Asset Management in Paris, which oversees the equivalent of $26 billion. The tax cuts "will have a positive psychological effect on Americans and it's a sign of hope for the stock market. It's a stimulus for consumer spending and that's positive," he said on Bloomberg Television.
The U.K.'s FTSE 100 added 0.3 percent to a two-month high as Rio Tinto Group rose. Germany's DAX gained 0.2 percent.
Emerging Markets
The MSCI Emerging Markets Index increased for a sixth day, climbing 2.2 percent. The Bombay Stock Exchange's Sensitive Index rallied 3.2 percent after India cut interest rates and unveiled a stimulus package to revive an economy growing at its slowest pace in six years.
U.S. stock futures fluctuated, with the Standard & Poor's 500 Index contract added 0.2 percent after earlier falling as much as 0.7 percent. The S&P 500 climbed to a two-month high last week, following the market's worst annual drop since the Great Depression, as General Motors Corp. got its first cash infusion from the government.
Obama is asking that tax cuts make up 40 percent of a stimulus package, according to a transition official and Democratic aides. The measure may be worth as much as $775 billion, a Democratic aide says, meaning tax cuts may constitute more than $300 billion of the legislation.
‘Strong Sign'
"New echoes about the stimulus plan are giving optimism back to investors," Benoit de Broissia, an equity analyst at KBL Richelieu Gestion in Paris, which oversees about $5.7 billion, said in a Bloomberg Television interview. "Government interventions have been very pronounced. It's a strong sign."
San Francisco Fed President Janet Yellen said yesterday at an economics conference in San Francisco that "it's worth pulling out all the stops" with an economic recovery package. Charles Evans, president of the Chicago Fed, told the same gathering he believes a "big stimulus is appropriate."
Nestle, the world's largest food company, climbed 2.6 percent to 42.70 Swiss francs. Nintendo, maker of the Wii video- game machine, jumped 5.2 percent to 35,500 yen.
Mizuho, Japan's third-biggest bank by market value, rallied 13 percent to 292 yen. Sumitomo Mitsui Financial Group Inc. soared 11 percent to 4,190 yen. Both shares were untraded in the final days of 2008 as they conducted stock splits in preparation for Japan's move to a paperless stock system.
Japan's Banks
The Japanese government and central bank are considering buying corporate debt, stocks and derivatives from financial companies, the Sankei newspaper reported on Dec. 30. A lack of capital helped drive bankruptcies among listed Japanese companies to the highest since World War II last year, according to researcher Teikoku Databank Co.
Rio Tinto, the world's third-largest mining company, jumped 3.4 percent to 1,751 pence. Xstrata Plc, the fourth-largest copper producer, advanced 4.4 percent to 780 pence.
Copper and zinc futures surged by the daily limit in Shanghai on speculation index funds will buy more industrial metals this month to reflect annual re-weightings in their benchmarks.
Neste Oil Oyj, Finland's only crude refiner, climbed 4.1 percent to 11.56 euros. Crude oil rose for a third day in New York after Israeli troops entered the Gaza Strip, escalating the 10-day-old conflict and threatening stability in the Middle East, the largest oil-producing region.
The contract for February delivery increased as much as 5.1 percent to $48.68 on the New York Mercantile Exchange.
Renault SA sank 6 percent to 18.75 euros. Citigroup Inc. downgraded France's second-largest carmaker to "sell" from "hold" and slashed its price estimate on the shares by 67 percent to 12 euros.
Options, TED Spread
The benchmark index for European options, the VStoxx Index, fell for a second day, losing 0.8 percent to 41.74. The gauge, which measures the cost of using options as insurance against declines in the Euro Stoxx 50 Index, climbed to 87.51 in October, the highest since at least 2001, data compiled by Bloomberg show.
Concern that global stock losses will deepen remains elevated even after falling from record levels in October and November. The Chicago Board Options Exchange Volatility Index, which measures price swings in the S&P 500, ended 2008 at 40, up 78 percent from a year ago and more than triple the level at the start of 2007.
The difference between what the U.S. government and banks pay to borrow for three months, the so-called TED Spread, is three times higher than before credit markets started freezing in August 2007, according to data compiled by Bloomberg.
Bullish Strategists
Still, Wall Street strategists who told investors to buy stocks in the worst year since 1937 are even more bullish than a year ago, predicting the S&P 500 will rise 17 percent in 2009.
UBS AG, JPMorgan Chase & Co. and Deutsche Bank AG say the Fed's decision to slash interest rates will help revive the U.S. economy and drive investors back to equities. Cheaper fuel prices and Obama's stimulus plans will send stocks higher, the strategists said.
