(Updates with Wall Street outlook)
By Natsuko Waki
LONDON, Feb 21 (Reuters) - European stocks rallied and Wall
Street was set for a firmer open on Thursday as solid earnings
and expectations of further U.S. interest rate cuts eclipsed
inflation concerns from soaring energy and commodity prices.
Gold and platinum hit historic highs, while silver hit a
27-year high, extending their recent rallies. Coupled with a
rally in industrial metals, firmer commodity prices underpinned
emerging market assets.
European credit market sentiment improved while the dollar
<.DXY> was under pressure after the Federal Reserve cut its U.S.
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, which 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.
"Good results are always what the market needs," said Howard
Wheeldon, senior strategist at BGC Partners. "It does start to
beg the question have the sellers done their business?"
The FTSEurofirst 300 index <> rose 1.8 percent on the
day while MSCI main world equity index <.MIWD00000PUS> was up
nearly 1 percent. Cooper hit a four-month high <MCU3> and zinc
<MZN3> jumped 5 percent, boosting mining firms. The basic
resource sector <.SXPP> rose more than 4 percent in Europe.
U.S. stock futures were up around 0.6 percent <SPc1>.
The iTraxx Crossover index <ITCRS5EA=GFI>, most widely
watched indicator for European credit market sentiment, shrank
to 580 basis points, suggesting that the cost of corporate debt
insurance has eased from all-time peaks set on Wednesday.
Gold <XAU=> hit historic highs of $948.60 an ounce, while
platinum <XPT=> also hit a record high. Silver <XAG=> hit a
27-year high. U.S. crude oil held near $100 a barrel <CLc1>,
having hit a record high above $101 on Wednesday.
Soaring energy and commodity prices have been fanning
inflation concerns. French inflation rose at its fastest annual
pace in at least 11 years, while Swiss input price inflation
accelerated at the fastest pace in over 18 years in January.
This followed Wednesday's data that showed 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.
Investors scaled back expectations of an euro zone interest
rate cut this year, pushing the region's government bond prices
lower. The March Bund future <FGBLH8> shed 52 ticks.
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> was steady while emerging
stocks <.MSCIEF> were up 1.3 percent.
(Additional reporting by Michael Taylor)
