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World shares, euro rally after Chinese rate cut

Hopes of more stimulus by Federal Reserve and the ECB drove global stocks up more than 2%

Reuters  |  New York 

World shares rallied to their highest in more than a week and the euro gained on Thursday after China surprisingly cut interest rates to shore up slackening economic growth, fueling hopes other major central banks may follow suit.

Brent crude rose above $102 a barrel on expectations that faster growth in the world's largest energy consumer could lead to increasing demand. Commodity-linked currencies such as the Australian and New Zealand dollars jumped.

The decision by China to cut benchmark rates by 25 basis points came a day after hopes of more stimulus by the Federal Reserve and the European Central Bank drove global stocks up more than 2% in a sharp turnaround from recent heavy losses.

China's move "is not expected and good for risk," said Neil Jones, head of hedge fund sales at Mizuho Corporate Bank in London. "Expect other major trading nations to follow. The global sovereign policy response has begun."

MSCI world equity index rose 1.4%t to 303.47 points, after posting its biggest daily gain since December on Wednesday.

U.S. stocks opened higher. The Dow Jones industrial average was up 116.44 points, or 0.94%, at 12,531.23. The Standard & Poor's 500 Index was up 12.57 points, or 0.96%, at 1,327.70. The Nasdaq Composite Index was up 24.50 points, or 0.86 percent, at 2,869.22.

"Interest rates are crumbling around the world, which should help stabilize economic activity going forward and should be positive for equities," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Later Thursday, Fed Chairman Ben Bernanke will testify before a congressional committee. Investors will parse his words closely after his No. 2, Janet Yellen, said the Fed was ready to offer more support to the fragile economic recovery.

Earlier, data showed the number of Americans lining up for new jobless benefits fell last week for the first time since April, a reminder that the wounded labor market is still slowly healing.

The FTSE Eurofirst 300 index of top European shares was up 1.6%.

The euro rose 0.3% to $1.2601.

Sterling gained 0.6% to $1.5579 after the Bank of England decided not to inject help for Britain's struggling economy on Thursday, as signs of resilience kept recovery hopes alive while the euro zone works on a fix to its prolonged debt crisis.

The better tone in the allowed Spain to sell 2.1 billion euros of fresh debt on Thursday, just days after the country's Treasury minister warned that access to the credit was under threat.

Yields initially fell 10 basis points on Spain's existing 10-year bonds after the auction to 6.2%.

Brent crude rose $1.49 to $102.13 a barrel. U.S. crude was trading up about $1.67 a barrel at $86.69.

First Published: Thu, June 07 2012. 19:32 IST