By Natsuko Waki
LONDON, Feb 26 (Reuters) - World stocks hit a three-week
peak and the dollar edged higher on Tuesday as upbeat results
from Standard Chartered <STAN.L> and optimism surrounding U.S.
bond insurers brightened investor morale.
European credit market sentiment improved with the cost of
corporate debt insurance falling further, while commodity and
energy prices came off recent lofty peaks, calming inflation
concerns.
Asia-focused bank Stanchart reported a 27 percent rise in
annual profit and said wholesale banking had a record January,
easing concerns about the health of the banking sector hit by
the six-month-old credit crisis.
Also helping sentiment, Standard & Poor's removed on Monday
its threat to downgrade insurer MBIA <MBI.N> while a rescue plan
for rival Ambac Financial <ABK.N> is set to be announced soon.
Investors have been spooked by the threat of credit
downgrades of these "monoline" insurers due to their exposure to
U.S. subprime mortgages.
Downgrades of the monolines, which provide cover against
defaults in securitised debt, could trigger a wave of forced
selling in bonds and lead to more losses by banks.
"The news we've had on the monolines have been risk
appetite-friendly, commodities are coming back a little bit from
their recent highs," said Ian Stannard, senior foreign exchange
strategist at BNP Paribas.
The FTSEurofirst 300 index <> was up 0.7 percent while
the MSCI main world equity index <.MIWD00000PUS> rose 0.2
percent to levels last seen early in February.
Stanchart shares rose nearly 4 percent while the broader
banking sector <.SX7P> was up 1.5 percent.
The iTraxx Crossover index <ITCRS5EA=GFI>, most-widely
watched indicator for European credit market sentiment,
tightened to 533.5 basis points. The index widened to record
levels last week due to concerns about forced debt selling.
OIL, GOLD OFF HIGHS
U.S. light crude <CLc1> fell 0.3 percent to $98.86 a barrel
as expectations rose for higher crude stocks. Gold <XAU=> fell
to $928.20 an ounce after the U.S. Treasury said it would
support gold sales by the International Monetary Fund, which
holds more than 3,000 tonnes of bullion.
Platinum <XPT=> also tracked gold lower.
A recent surge in commodity prices has fanned inflation
concerns, which could slow the pace of interest rate cuts by the
Federal Reserve and other central banks keen to limit the
effects of the credit crunch on the real economy.
"Inflation expectations remain critical and any significant
deterioration on that front would be a trigger for financial
market volatility," UBS said in a note to clients.
"With market sentiment highly dependent on further Fed
easing, upward inflation pressure would certainly put the Fed on
the defensive."
Interest rate futures expect the Fed to cut interest rates
by half a point in March.
Emerging sovereign spreads <11EMJ> were unchanged while
emerging stocks <.MSCIEF> rose a third percent.
The March Bund future <FGBLH8> was steady on the day.
(Additional reporting by Toni Vorobyova; Editing by Gerrard
Raven)
