By Jeremy Gaunt, European Investment Correspondent
LONDON, Jan 24 (Reuters) - Investors poured back into
equities on Thursday, hoping a rescue plan for ailing bond
issuers would stem credit losses, while allegations of a massive
trade fraud at Societe Generale added to financial sector woes.
Demand for bonds fell as equities rebounded but currency
traders remained cautious.
European and Asian stocks markets took their cue from
overnight gains on Wall Street to rise sharply. The pan-European
FTSEurofirst 300 <> was up 3.6 percent and Japan's
benchmark Nikkei <> closed 2.1 percent higher.
The key driver was news that New York's insurance regulator
had pressed major banks on Wednesday to put up billions of
dollars to support wobbly bond insurers.
Investors are also still digesting the U.S. Federal
Reserve's emergency 75 basis point cut in benchmark interest
rates on Tuesday with expectations of more to come.
Insurers have become the latest sector to worry investors
because of their exposure to credit, which has been in crisis
since the middle of last year.
"If these guys would fail, it would be much more
catastrophic for banks' balance sheets and we would see another
round of write-downs," said Edmund Shing, strategist at BNP
Paribas in Paris.
Japan's market, meanwhile, was boosted by discussions among
the country's ruling party about helping the stock market
recover. The draft proposals included a call for the Bank of
Japan to cut interest rates to zero again.
Overall, the new optimism wiped away some of this week's
sharp losses on bourses. European investors, however, were
rattled when Societe Generale <SOGN.PA> said it had uncovered
one of the biggest frauds in financial history.
France's second-biggest listed bank said an "exceptional
fraud" by one of its traders would cost the group 4.9 billion
euros ($7.16 billion). It announced plans to raise 5.5 billion
euros through a capital increase to shore up its balance sheet,
also reeling from a crisis in global credit markets.
SocGen shares were suspended.
BETTER IFO
European markets were little changed by a
better-than-expected Ifo economic research institute report on
German business confidence.
Euro zone government bond prices fell as stocks bounced
back.
"If equities hold up on the back of this bond insurers
rescue package, then it is going to be hard for bond markets to
generate any upward price momentum so the risks would be for a
bigger short-term pull-back," said ABN AMRO rate strategist
Jason Simpson.
Two-year Schatz yields <EU2YT=RR> were 10 basis points
higher at 3.342 percent, while 10-year yields <EU10YT=RR> were 5
basis points higher at 3.964 percent.
The yen strengthened versus the dollar and euro as lingering
concerns on the health of the global economy saw investors
buying the low-yielding currency despite rallying equities.
The dollar was down 0.3 percent at 106.30 yen <JPY=>. The
euro fell 0.4 percent to 155.47 yen <EURJPY=>. The euro was a
touch softer versus the dollar at $1.4621 <EUR=>.
(Editing by Ruth Pitchford)
