* MSCI world equity index up 0.6 pct at 234.47
* Banks lead a rally in stocks
* Euro hits one-month high; yen lower
By Natsuko Waki
LONDON, May 5 (Reuters) - World stocks raced to their
highest level in almost four months on Tuesday while the euro
hit a one-month high against the dollar as increasing optimism
about banks prompted investors to buy riskier assets.
Investors are anxiously waiting for the result of a stress
test on 19 U.S. banks due this week. A source told Reuters that
about 10 banks would be told they needed to increase the size of
their capital cushions. []
Another source told Reuters that an expected first-quarter
loss for insurer American International Group <AIG.N> would not
trigger a new capital injection from the government.
The benchmark MSCI world equity index <.MIWD00000PUS> is now
in positive territory for the year as one in three companies
which reported first-quarter earnings so far has surprised on
the upside and recent data showed the worst might be over for
the global economy.
"People have been wanting to price in the turning point for
quite a while," said Georgina Taylor, equity strategist at Legal
& General Investment Management.
"Now you're getting the data to back it up, a combination of
top-down macro data and some better than expected earnings. The
market is starting to price in a recovery.
"With the stress tests it may be a case of 'better the devil
you know' - get them out of the way and then move on."
The MSCI world equity index rose 0.6 percent, hitting its
highest level since early January. The index is now up 2.7
percent this year, after falling 43 percent last year.
The FTSEurofirst 300 index <> rose 1.1 percent with
the banking sector one of the biggest risers, while emerging
stocks <.MSCIEF> rose two thirds of a percent.
U.S. stock futures were mixed <SPc1> after a rally drove the
S&P 500 index <.SPX> into positive territory for the year on
Monday.
"There seems to be an incredible amount of optimism around
at the moment," said David Jones, chief market strategist at IG
Markets.
A clutch of major U.S. companies report their Q1 results
this week. Thomson Reuters data shows that so far, 66 percent of
326 companies in the S&P 500 index have reported earnings above
analyst expectations.
In aggregate, U.S. companies are reporting earnings that are
10.4 percent above the estimates, which is above the long-term
average of around 1.6 percent.
On the macroeconomic side, manufacturing surveys have
suggested the worst may be past in Asia and Europe, while U.S.
data on Monday showed pending sales of existing homes rose
unexpectedly in March, following a pick-up in consumer
confidence there.
ADDING RISKS
The euro hit a one-month high of $1.3437 <EUR=> as rallying
equities and optimism over the economy spurred buying in riskier
currencies.
The Australian dollar held near a seven-month high around
US$0.7426 <AUD=> after the country's central bank left its key
cash rate at 3 percent as expected, pointing to signs of
stabilisation abroad.
The dollar was up 0.1 percent <.DXY> against a basket of
major currencies while the yen was slightly weaker at 99.08 per
dollar <JPY=>.
U.S. crude oil <CLc1> fell a quarter percent to $54.35 a
barrel -- which is still close to a 2009 high.
The June Bund future <FGBLc1> was little changed with focus
on a monetary policy verdict from the European Central Bank on
Thursday.
(Additional reporting by Brian Gorman, editing by Mike Peacock)
