(Corrects to show April best month for equities since December
2003, not May 2003)
By Natsuko Waki
LONDON, May 1 (Reuters) - World stocks held steady below
this week's three-month peak on Thursday after the Federal
Reserve left the door ajar for more interest rate cuts instead
of declaring the worst of the credit crisis was over.
The U.S. central bank cut benchmark interest rates on
Wednesday to 2 percent, and has now lopped a hefty 3.25
percentage points off rates since September.
It dropped a phrase contained in its last announcement that
"downside risks to growth remain" and flagged up rising energy
and other commodities prices but said it would act as needed to
support the economy.
"The promise to act as needed to promote sustainable growth
and price stability gives the FOMC ample scope to respond to
incoming data," said Steven Pearson, chief strategist at Bank of
Scotland Treasury.
"However, the pro-risk move faded ... as implications of
exactly why the Fed did not feel comfortable enough to sound the
all clear sunk in."
The FTSEurofirst 300 index <> was nearly unchanged on
the day while MSCI main world equity index <.MIWD00000PUS> was
also steady. Major continental European stock markets are closed
for the Labour Day holiday.
April was the best month for world equities since December
2003. The MSCI world index rose 5.31 percent over the month,
just above the 5.30 percent gain of Nov. 2004.
Growing investor optimism and emerging inflation concerns
are weighing on safe-haven government bonds. Citi's world
government bond yield rose nearly 32 basis points in April,
closing at 3.1718 percent versus 2.8650 percent end-March.
The dollar rose 0.4 percent against a basket of major
currencies <.DXY> on the day while the euro lost 0.6 percent to
$1.5523 <EUR=>.
BANK REPORT HELPS POUND
Sterling rose 0.2 percent on the trade-weighted index
<=GBP>, benefiting from a report by the Bank of England that
said the scale of losses and the economic fallout from the
credit crunch may not be as bad as feared and subprime
write-offs could end up costing less than half market forecasts
-- which are around $400 billion.
It was also buoyed by a slightly better-than-expected UK
manufacturing survey.
The June Bund future <FGBLM8> rose 10 ticks. U.S. interest
rate futures <FEDWATCH> are pricing in a 1-4 chance of another
Fed rate cut to 1.75 percent in June.
U.S. light crude <CLc1> rose 0.3 percent to $113.80 a barrel
while gold <XAU=> jumped almost 2 percent to $881.30 an ounce.
Wednesday's rate cut underpinned U.S. corporate bonds, which
have rallied in recent weeks as expectations grew that the worst
of the credit crisis maybe over.
Lehman Brothers said the tightening in spreads of
securitised and corporate bonds since mid-March represents the
most pronounced rally since the months following Sept. 11, 2001
or the fourth quarter of 2002.
"This risk reset is unfolding nearly twice as fast as past
episodes ... Hopefully, this seven-week-old rally has a little
more steam left, but we think the best is past," the bank said
in a note to clients.
"The next portfolio allocation shift should include
preparing for another bout of doubt during the late summer."
(Editing by Mike Peacock)
