Global stocks rally as investors scent fresh stimulus

By David Gaffen

NEW YORK (Reuters) - Global equity markets rose on Wednesday, led by an 8-percent surge in Japanese stocks, helping lift the dollar as the prospect of more economic stimulus out of Asia soothed investors rattled by recent market turmoil.

An early rally on Wall Street faded, leaving major U.S. averages in negative territory in the afternoon. As the equity market declined, U.S. debt prices rebounded after an auction of $21 billion in 10-year notes.

Oil prices gave up early gains, beset by ongoing concerns about oversupply.

The biggest equity move was in Japan, where signals from Prime Minister Shinzo Abe that Japan will cut corporate taxes pushed the Nikkei 225 <.N225> stock index up 7.7 percent, its biggest one-day rise since October 2008.

China's Finance Ministry said on Wednesday it would strengthen fiscal policy, boost infrastructure spending and speed up tax reform, helping lift Chinese shares for a second day.

The Shanghai Composite <.SSEC> closed 2.3 percent higher and the CSI 300 index <.CSI300> rose 1.96 percent while Hong Kong's Hang Seng was up 4.5 percent. China's shares rallied Tuesday on investor expectations that Beijing will add more stimulus to bolster slowing growth.

Angus Gluskie, managing director of White Funds Management in Sydney, described Wednesday's stock rally as a "speculative bounce."

"The market will remain susceptible to a return of negativity until we see signs of some improvement in the original causes of weakness, which were predominantly Chinese growth concerns," he said.

The Dow Jones industrial average fell 98.81 points, or 0.6 percent, to 16,393.87, the S&P 500 lost 10.82 points, or 0.55 percent, to 1,958.59 and the Nasdaq Composite dropped 13.72 points, or 0.29 percent, to 4,798.21.

European shares followed Asia higher. The pan-European FTSEurofirst 300 index rose 1.4 percent.

Investors' increased appetite for risk saw the dollar firm against the safe-haven yen and the euro. The single European currency was down 0.2 percent at $1.1176 while the yen was 0.9 percent weaker at 120.81 per dollar.

The dollar index , which measures the greenback against a basket of six major currencies, was up 0.1 percent.

German 10-year bond yields rose 2 basis points to 0.70 percent. Germany sold 3.2 billion euros of the paper at an average yield of 0.69 percent, attracting bids worth less than the 4 billion on offer.

U.S. 10-year Treasury yields were at 2.19 percent, with a slight loss of 2/32 in price.

Benchmark Brent crude was down 3 percent at $48.06 a barrel. U.S. crude fell 2.8 percent to $44.63 a barrel.

Copper hit a seven-week high above $5,400 a tonne and was lately traded at $5356.50 a tonne. Gold fell to $1,106 an ounce.

(Additional reporting by Nichola Saminather in Singapore, Lisa Twaronite in Tokyo, Emelia Sithole-Matarise and Libby George in London; Editing by Catherine Evans and Nick Zieminski)