* MSCI world equity index up 0.7 pct at 296.97
* Stocks, emerging assets higher on bailout revival hopes
* Money markets still under stress
By Natsuko Waki
LONDON, Oct 1 (Reuters) - World stocks began the final
quarter of 2008 on an upbeat note on Wednesday as hopes grew
that U.S. lawmakers could reach agreement to revive a $700
billion bailout, but money markets remained stressed.
The U.S. Senate will vote later on a new version of the
bailout package to tackle the worst financial crisis since Great
Depression after the House of Representatives shocked markets
with a rejection earlier in the week.
Hopes for a breakthrough, along with Tuesday's moves by
Ireland to pledge up to 400 billion euros to guarantee bank
deposits and the bailout of another European bank, Dexia
<DEXI.BR>, helped stabilise investor morale, pushing stocks
higher across the board.
However, other markets remained deeply stressed, especially
in money markets where the beginning of a new financial quarter
failed to relieve strains despite recent actions by central
banks to pump billions of dollars.
"The market is all about confidence and investors need to
just hang in there and not be swayed by different rumours. The
worrying sign is that it is based on no more than a hopeful
optimism without much basis to it at the moment," said Justin
Urquhart Stewart, director at Seven Investment Management.
"This is the eye of the storm until we wait for the decision
from the U.S. Senate and see how the restructuring takes place."
The FTSEurofirst 300 index <> rose 0.7 percent while
MSCI main world equity index <.MIWD00000PUS> rose two thirds of
a percent, having hit a 2-1/2 year low on Tuesday.
The index fell 17 percent in the previous three months, its
worst quarterly performance since the final quarter of 2002.
The dollar <.DXY> fell 0.15 percent against a basket of
major currencies while the low-yielding yen fell a quarter
percent to 106.31 per dollar <JPY=>.
NEAR PARALYSIS
Money markets remained under pressure globally as banks
hoarded cash and wholesale lending dried up.
Early in London on Tuesday, the interbank cost of borrowing
dollars overnight was indicated between 3.0 and 5.5 percent
<USDOND=>, and was last posted at the bottom of that range.
Norway's main overnight interbank money market rate leapt to
7.65 percent <NIBQ>, nearly 200 basis points above the central
bank's benchmark rate of 5.75 percent.
The cost of borrowing dollars overnight has shot up as high
as 6 percent <USDOND=> before easing to 3 percent in Europe,
still 100 basis points above the Federal Reserve's policy rate.
The December bund future <FGBLc1> rose 16 ticks, reflecting
demand for safer government papers.
U.S. long-term yields, using 30-year Treasuries <US30YT=RR>,
fell 3 basis points to 4.2753 percent. According to Barclays
Capital, that is nearly 100 basis points below the mean yield
for the past 208 years.
"The nominal and return prospects for bonds in 2009 do not
look all that auspicious in many jurisdictions," the bank said
in a note.
"And unless the world economy's really in for a protracted
slump through the end of 2009, then risky asset classes, like
equities, will generate higher total returns."
Emerging stocks, measured by MSCI <.MSCIEF>, rose 0.6
percent, having fallen 27 percent in the previous quarter --
their worst quarterly performance in its 20-year history.
Emerging sovereign spreads <11EMJ> tightened 21 basis points
to trade 393 bps above U.S. Treasuries.
Confidence remained fragile in risky emerging markets after
Russia on Tuesday halted trading in exchanges yet again for two
hours.
U.S. light crude <CLc1> rose 1.4 percent to $102.03 a
barrel, while gold <XAU=> rose to $880.10 an ounce.
(Editing by Mike Peacock)
