By Natsuko Waki
LONDON, April 2 (Reuters) - World stocks jumped to a
one-month peak on Wednesday and the dollar rose broadly as moves
by major banks this week to come clean on their financial woes
and raise fresh capital relieved investors.
Safe-haven government bonds were vulnerable after this
week's sell-off. Energy and commodity prices recovered,
providing support for emerging markets and other risky assets.
A $19 billion writedown by UBS <UBSN.VX>, revelation of a
bigger-than-expected writedown at Deutsche Bank <DBKGn.DE> and
strong demand for Lehman Brothers' <LEH.N> share offering aimed
at raising fresh capital all helped to boost expectations that
the worst of the eight-month-old credit crisis might be over.
"There's a growing sense of optimism in the market, rightly
or wrongly, that the worst of the financial crisis is over ...
and that's raising the market's risk appetite," said Adam Cole,
global head of FX strategy at RBC Capital Markets.
The FTSEurofirst 300 index <> rose half a percent
while MSCI main world equity index <.MIWD00000PUS> rose nearly 1
percent to its highest level since late February.
Expectations are growing that policymakers of the Group of
Seven rich nations might launch a big mop-up operation to fix
rotten financial markets with public money. G7 finance chiefs
meet in Washington later this month.
So far a series of liquidity injections by the world's major
central banks have helped to ease strains in the money markets.
Interbank lending rates have risen sharply in the run up to the
end of the first quarter due to concerns about the banking
sector.
The dollar hit a one-week high against a basket of major
currencies <.DXY> before steadying as optimism grew about the
health of the banking sector. It was up 0.1 percent at 101.97
yen <JPY=>, after climbing to a three-week high around 102.30
yen earlier in the day.
Analysts say choppy trading condition might continue until
the Federal Reserve meeting on April 29-30 where investors price
in a more than 70 percent chance of a 25 basis point interest
rate cut from the current 2.25 percent.
U.S. Treasuries <US10YT=RR> steadied after tumbling on
Tuesday as investors who grew optimistic about the economy
dumped safe-haven assets.
"Bonds have come a long, long way and even the bullish
clients we speak to regularly are starting to take profits at
the long end of the curve," David Rosenberg, North American
economist at Merrill Lynch, said in a note to clients.
Junk bond spreads widened 200 bps in the first quarter and
investors have priced in an excessive 10 percent default rate
while investment-grade spreads had also widened, he noted.
"If the clouds were to part at least somewhat, even
risk-averse investors may be lured by the 5 percent average
yield on municipal bonds," he said.
The June Bund future <FGBLM8> was down slightly on the day.
Oil rose 0.4 percent to above $101 a barrel <CLc1>, while
gold <XAU=> recovered to $887.70 an ounce after falling three
percent on Tuesday.
Firmer commodity prices buoyed emerging market assets.
MSCI's emerging stock index <.MSCIEF> rose 2 percent while
emerging sovereign spreads <11EMJ> tightened 5 basis points.
The iTraxx Crossover index <ITCRS5EA=GFI>, most-widely
watched indicator for European credit market sentiment,
tightened 11 basis points to 527 bps.
(Additional reporting by Naomi Tajitsu; editing by David Stamp)
