Stocks up amid expectations of further Fed cut

Stocks advanced in Europe and Asia, led by industrial and mining shares, on speculation the Federal Reserve will cut interest rates to spur economic growth and JPMorgan Chase & Co recommended buying equities.

Siemens AG, Europe's biggest engineering company, gained in Frankfurt after JPMorgan upgraded the region's stocks. The rise in metals prices in London sent mining companies including Anglo American Plc higher. Toyota Motor Corp and Isuzu Motors Ltd. gained in Tokyo as brokerages lifted recommendations on the stocks. US index futures increased.

The MSCI World Index added 0.7 percent to 1,454.37 as of 10:56 am in London, and futures on the Standard & Poor's 500 Index rose 0.3 percent. All 18 markets in Western Europe advanced, after shares in the region declined on Monday.

"What's pushing the market is expectations of a rate cut," said Nathalie Pelras, who helps manage $7.3 billion at Richelieu Finance in Paris. "Financial companies will benefit."

Traders see an 86 percent chance that the US central bank will lower the rate by a half-point compared with zero a week ago, according to Fed funds futures. The Federal Open Market Committee, which began a two-day meeting yesterday, will announce its decision in Washington today.

The Fed cut its benchmark rate by 0.75 percentage point to 3.5 percent on Jan 22.

"The Fed clearly can support the stock market and prevent it from going too low," said Antoine Beaugendre, equity strategist at Societe Generale SA.

Europe's Dow Jones Stoxx 600 Index added 1.5 percent. France's CAC 40 gained 1.6 percent and the United Kingdom's FTSE 100 rose 1.5 percent. Germany's DAX advanced 1.1 percent.

The Stoxx 600 has swung from gains to losses this month as investors weighed concern that the US will slip into a recession against expectations borrowing costs will recede. The index posted its biggest decline since the Sept 11 terrorist attacks on Jan 21 and its biggest increase since 2003 on Jan 24.

MSCI rises

The MSCI Asia Pacific Index increased 1.4 percent. Japan's Nikkei 225 Stock Average added 3 percent. Siemens climbed 2.4 percent to 85.21 euros, and MAN AG, Europe's third-largest truckmaker, added 4.5 percent to 85.48 euros. UBS AG, Europe's largest bank by assets, advanced 1.2 percent to 46.04 Swiss francs.

European equities were upgraded to "overweight" from "neutral" by JPMorgan strategists including Mislav Matejka in London, who said that "risk reward" for stocks has improved.

"Monetary and fiscal response is swift, suggesting the bottoming in macro momentum indicators at mid year," they wrote in a note to investors.

AP Moeller-Maersk A/S, the world's biggest container- shipping line, gained 5 percent to 50,400 kroner. ING Groep NV raised its recommendation on the shares to "hold" from "sell".

Anglo American rose 4.3 percent to 2,570 pence. Norsk Hydro ASA, Europe's second-largest aluminum producer, added 5.6 percent to 61.9 kroner.

Copper, lead, nickel, tin and zinc advanced in London.

"We're still bullish on the resource sector," said Greg Smith, executive director at Global Commodities Ltd. "The rally can continue because of consumption."

Agencies

(China Daily 01/30/2008 page16)