By Natsuko Waki
LONDON, Feb 21 (Reuters) - World stock prices rose on
Thursday after solid earnings and expectations of further U.S.
interest rate cuts eclipsed inflation concerns stemming from
soaring energy and commodity prices.
European credit market sentiment improved while the dollar
was nursing losses after the Federal Reserve cut its economic
growth forecast for 2008 due to the deepening housing slump,
which fanned expectations for a half-point rate cut in March.
The six-month credit crisis, stemming from the fallout in
U.S. subprime mortgages, has tightened credit and pushed some
stock indexes briefly into bear market territory, a cycle that
starts when an index falls 20 percent from a peak.
However, there is limited evidence that corporates outside
the banking sector have suffered materially as a result of the
credit crunch.
Hewlett-Packard <HPQ.N> reported a 38 percent rise in
quarterly profits and an upbeat outlook, while Nestle <NESN.VX>,
the world's largest food firm, posted a higher-than-expected
15.8 percent rise in 2007 net profit.
"HP's forecast-beating profits indicated tech product demand
in the U.S. market has not been hit by the subprime crisis as
hard as investors had worried," said James Wang, chief
investment officer at Capital Securities Investment Trust in
Taiwan.
The FTSEurofirst 300 index <> was up 0.6 percent on
the day while MSCI main world equity index <.MIWD00000PUS> was
also up 0.7 percent.
The iTraxx Crossover index <ITCRS5EA=GFI>, most widely
watched indicator for European credit market sentiment, shrank
to 585 basis points, suggesting that the cost of corporate debt
insurance has eased from all-time peaks set on Wednesday.
U.S. crude oil held above $100 a barrel <CLc1>, having hit a
record high above $101 on Wednesday. Gold <XAU=> also firmed to
$946.75 an ounce, near the previous day's all-time peak while
silver <XAG=> hit a 27-year high.
Soaring energy and commodity prices have been fanning
inflation concerns. French inflation was stronger than expected
in January, with the EU-harmonised consumer price index rising
at its fastest annual pace in at least 11 years.
In Switzerland, input price inflation accelerated at the
fastest pace in over 18 years in January.
Wednesday's data showed the headline U.S. consumer price
index rose for a second straight month in January, while core
prices posted the strongest monthly rise since June 2006.
Quickening inflation might discourage the Fed and other
central banks from cutting interest rates to cushion an economic
downturn from the credit turmoil.
FICKLE MARKETS
Financial markets have been rather directionless in recent
sessions -- falling one day on concerns about global growth and
inflation, only to row back the next day on optimism about
corporate profits.
"The fickle nature of markets continues to frustrate any
attempts to establish trends or directional plays," said Daragh
Maher, currency strategist at Calyon.
Since July 2007, Calyon's risk aversion indicator has moved
in the same direction for three days or more on only 18
occasions out of 167 observations.
"So as soon as you think a mindset is taking hold, recent
history would suggest you should position for the opposite
outcome."
Emerging sovereign spreads <11EMJ> tightened 1 bps while
emerging stocks <.MSCIEF> were up 1 percent.
U.S. Treasury prices were largely steady in Europe after the
gap between the two- and 10-year notes narrowed to 173 basis
points on Wednesday after widening to around 192 bps for the
first time since mid-2004.
The March Bund future <FGBLH8> was down 0.2 percent.
(Reporting by Natsuko Waki; editing by Tony Austin)
