(Updates with Wall Street outlook, fresh prices)
By Natsuko Waki
LONDON, Feb 25 (Reuters) - World stocks and the dollar rose
on Monday as talk of a rescue plan for U.S. bond insurer Ambac
and comments that Qatar is interested in investing in European
banks eased concerns about the health of the banking sector.
Commodity prices remained firm, with U.S wheat and soybean
prices setting record highs due to supply concerns. Silver hit a
27-year high and platinum and gold held near last week's record
peaks. High commodity prices have been a source of inflation
concerns in recent weeks.
Investors have been spooked by the threat of credit
downgrades raised by the monoline bond insurers' exposure to
U.S. subprime mortgages.
The monolines provide cover against defaults in securitised
debt. Downgrades could trigger a wave of forced selling in bonds
the insurers have guaranteed, which would lead to more losses by
banks in the six-month-old credit crunch.
A rescue plan for Ambac Financial <ABK.N>, which could be
announced on Monday or Tuesday, could allow the U.S. bond
insurer to keep its top rating and avert debt sell-offs. (For
story click on [])
"We had some positive news on Ambac -- the fact that
certainly one of the largest monolines could be underwritten by
a consortium of banks," said Richard Hunter, head of UK equities
at Hargreaves Lansdown.
"That's taken very positively because the market is looking
for signs perhaps some of the corners have been turned."
The FTSEurofirst 300 index <> rose 1.3 percent while
MSCI main world equity index <.MIWD00000PUS> was up 0.7 percent.
U.S. stock futures were up around 0.1 percent, indicating a
firmer open on Wall Street <SPc1>.
Credit market sentiment also improved in Europe. The iTraxx
Crossover index <ITCRS5EA=GFI>, the most widely watched
indicator for European credit market sentiment, narrowed to 545
basis points, indicating the cost of corporate debt insurance
has eased after hitting all-time peaks last week.
The dollar was up 0.2 percent against a basket of six major
currencies <.DXY>, capitalising on optimism surrounding the U.S.
bond insurers.
Banks and insurers were the main gainers in Europe, with
both sectors <.SX7P> <.SXIP> up nearly 3 percent after Qatari
prime minister Sheikh Hamad bin Jassim al-Thani's comments.
Al-Thani, who heads the country's $60 billion sovereign
wealth fund, told Reuters on Saturday that Qatar is looking to
spend $10-15 billion over the next two years on bank shares and
he favoured investing European over U.S. lenders.
Britain's Sunday Telegraph newspaper reported that Qatar is
considering making an investment into the UK's second largest
bank, the Royal Bank of Scotland <RBS.L>. The Gulf state already
has a less than 2 percent stake in Credit Suisse <CSGN.VX>.
State-run investment vehicles, which actively invest the
country's national wealth, have been a crucial provider of
liquidity in the financial market over the past year as they buy
stakes in U.S. and European banks hit by the credit crunch.
COMMODITIES AND INFLATION
Firmer food and commodity prices have been threatening to
push inflation higher in developed economies, complicating the
job of some central banks which are keen to cut interest rates
to limit the effect of the credit crisis on the real economy.
On Monday U.S. spring wheat on the Minneapolis Grain
Exchange hit a record above $20 per bushel, while European wheat
prices rose more than 2 percent.
Chicago soybean futures <0#S:> and European rapeseed also
hit record peaks, driven by Chinese demand.
"The problem for the Fed and many other central banks is
that inflation concerns will limit the extent of possible
monetary easing to help counteract weakness in growth," Mitul
Kotecha, head of global FX research at Calyon, said in a note.
"The market will continue to grapple with growth concerns on
the one hand and inflation pressures on the other."
U.S. light crude oil <CLc1> was down 0.1 percent at $98.68 a
barrel, although the downside was limited by geopolitical
concerns in Iran and Turkey. Silver <XAG=> rose as high as
$18.10 an ounce while gold <XAU=> rose to $951.90 an ounce.
Emerging market assets were firm, with emerging sovereign
spreads <11EMJ> tightening 5 basis points while emerging stocks
<.MSCIEF> rising 0.8 percent.
The March Bund future <FGBLH8> was down 39 ticks.
(Additional reporting by Dominic Lau)
