(Updates with Wall Street outlook, Libor and Q1 results)
By Natsuko Waki
LONDON, April 17 (Reuters) - World stocks hit a one-week
high on Thursday as this week's earnings results showed the
credit crisis is not hitting corporates as hard as many had
feared and that banks are attempting to clean up their problems.
The dollar hit all-time lows against the euro <EUR=> near
$1.60, which helped drive up oil prices to new record highs
above $115 a barrel. Other commodity prices also rallied, with
copper, tin and U.S. rice futures setting record highs.
Three-month dollar rates in the London interbank market shot
up by their largest amount since August 2007 <LIBOR> after
growing concerns over the credibility of Libor rates prompted
the British Bankers Association to accelerate a review of ways
to set them.
Merrill Lynch <MER.N> posted a first quarter loss after
taking several billion dollars of subprime mortgage writedowns,
while Bank of New York Mellon <BK.N> posted a Q1 profit, partly
helped by growth in fees from asset management.
"I would expect this is a clean-the-cupboards kind of report,
including anything that John Thain could put into a quarter that
was already going to be ugly. But the news from here should get
brighter," said Michael Holland at Holland & Co.
Nokia <NOK1V.HE>, the world's biggest mobile phone maker,
posted higher Q1 earnings, but its market outlook knocked the
shares down by 8 percent.
Thursday's results followed better-than-expected reports
from tech bellwethers Intel <INTC.O> and IBM <IBM.N> this week,
which has fed optimism that tighter lending and credit
conditions are not affecting the real economy as much as many
had feared.
"What the market is most sensitive to in this earnings cycle
is any hint, any sign that we're past the worst for the
financial sector. Even more so, the concern for the rest of the
market is the degree to which earnings are holding up," said
Bernard McAlinden, strategist at NCB Stockbrokers in Dublin.
The FTSEurofirst 300 index <> was steady on the day
while MSCI main world equity index <.MIWD00000PUS> rose 0.2
percent. U.S. stock futures were down almost 0.4 percent <SPc1>,
indicating a weaker open on Wall Street a day after major
indexes rose 2 percent.
Banking sector shares <.SX7P> rose 1.3 percent in Europe,
helped by expectations for a mortgage rescue plan by British
authorities.
A Treasury source told Reuters that the government and Bank
of England could announce details of the plan, which is expected
to allow banks to temporarily swap mortgage-backed securities
for government bonds, as early as next week.
"Clearly, there is a degree of euphoria or relief on
whatever is leaking out from the Bank of England," said Howard
Wheeldon, senior strategist at BGC Partners.
Key firms reporting their Q1 results later include Google
<GOOG.O> and Pfizer <PFE.N>.
The dollar had fallen as low as $1.5983 per euro <EUR=>
before erasing losses.
LIBOR STORM
Three-month dollar Libor rates rose to 2.81750 percent from
2.73375 percent on Wednesday. The market had been bracing for a
higher fixing on talk that the BBA was investigating rumours of
banks misquoting rates in the setting of Libor.
Libor reference rates are used by banks in lending unsecured
funds to each other and prices of a wide range of financial
instruments are based on these rates.
In recent months, critics have raised concerns that Libor
rates come from a small group of banks and do not accurately
reflect lending rates, especially in times of stress.
The spread on two-year U.S. interest rate swaps widened
sharply on Wednesday to their widest level in about five weeks
as a result of these concerns. The British Bankers Association
said it had brought forward a review of its Libor setting
process.
Since the credit crisis broke in August, a gap between LIBOR
rates and Overnight Index Swaps -- a short-term benchmark rate
for secured funds -- has widened to more than 100 basis points.
European credit spreads improved, with the iTraxx Crossover
index <ITCRS5EA=GFI> tightening 10 basis points to 496 bps.
Emerging sovereign spreads <11EMJ> were steady while
emerging stocks <.MSCIEF> were up 0.7 percent.
The June Bund future <FGBLM8> was down 30 ticks as
safe-haven demand petered out in the face of rising stocks.
U.S. light crude oil <CLc1> had risen as high as $115.54 a
barrel. The dollar's weakness and a fall in U.S. gasoline
stockpiles just weeks ahead of the summer driving season have
attracted fresh fund buying.
Gold <XAU=> climbed to a three-week peak above $950.00 an
ounce. Three-month copper <MCU3> hit a record high of $8,870 per
tonne due to a strike in Chile while tin <MSN3> for delivery in
three months also hit a record due to supply concerns in
Indonesia ad China.
Supply woes also pushed U.S. rice futures <RRN8> higher to
all-time highs.
(Additional reporting by Amanda Cooper, Dominc Lau and Michael
Taylor)
