Asian, European markets surge

Stocks in Europe and Asia climbed on speculation contagion from the worst US housing recession in 16 years is receding. Emerging-market shares and US index futures also advanced.

The Morgan Stanley Capital International Asia-Pacific Index added 1.9 per cent to 166.47 as of 6.32 pm in Tokyo, extending its gains since mid-August to 21 per cent. The Hang Seng passed 28,000 for the first time.

The index has surged 38 per cent since then and the market value of Hong Kong- listed stocks has jumped more than $685 billion.

Japan's Nikkei 225 Stock Average closed above 17,000 for the first time in more than seven weeks and benchmarks in Australia, Indonesia, Singapore and South Korea rose to records. Stock markets in China and India were shut for holidays.

"We are now getting more of an idea in terms of the scale of the impact'' of the US subprime-mortgage rout on banks' earnings, said Lucy MacDonald, who helps manage $100 billion as chief investment officer of global equities at RCM. in London. "Two months ago, we really had no idea.''

The S&P 500 advanced 1.3 per cent yesterday, while the Dow Jones Industrial Average gained 1.4 per cent. Citigroup Inc led financial shares higher after the largest US bank said it expects "a normal earnings environment'' in the fourth quarter.

However, the US markets were trading in the red today, with the S&P 500 declining by 2.73 points to 1,544.33 and the Dow Jones falling by 31.30 points to 14,056.17 at 9 pm.

European government bonds fell as gains in stocks cut demand for the safest assets. The risk of owning European corporate bonds also dropped, according to traders of credit-default swaps.

Europe's Dow Jones Stoxx 600 Index gained 0.9 percent to 384.42. National benchmarks rose in all of the 18 western European markets except Norway. The UK's FTSE 100 gained 0.5 per cent as did Germany's DAX. France's CAC 40 climbed 0.8 per cent.

"We see more visibility,'' said Christian Gattiker, head of equity markets at Bank Julius Baer in Zurich. "It would be reasonable to think there's some upside left for the end of the year.''

The MSCI Emerging Markets Index, a global benchmark for developing countries, advanced to a record. Bank of China and OAO Sberbank, Russia's biggest bank, climbed.

UBS rose 3.9 per cent to 67 francs after Morgan Stanley raised its recommendation on the shares to "equal-weight'' from "underweight.'' UBS yesterday reported a third-quarter loss, ousted two top executives and announced 1,500 job cuts after reducing the value of fixed-income securities by more than 4 billion Swiss francs ($3.4 billion).

"Yesterday's news and the vigorous change in direction in its investment bank reduce the drag on a cash generative growing group,'' Morgan Stanley analysts wrote.

JPMorgan lifted its recommendation on the stock to "neutral'' from "underweight.''

"We're seeing the beginning of the operation of clarity by banks,'' said Jean-Paul Pierret, a strategist at Dexia Securities France. "It's a relief.''

Mitsubishi UFJ, Japan's largest publicly traded bank, rallied 5.6 per cent to 1,114 yen. The company said last month it may have to revalue securities holdings at a "significantly lower price'' because of credit-market turmoil.

Westpac, Australia's fourth biggest lender, climbed 1.9 per cent to A$29.01. The company agreed to take over Rams Home Loans Group's branch network and provide A$1.5 billion ($1.3 billion) in funding after the Sydney-based lender failed to refinance its short-term debt.

Bank of China, China's second-biggest bank, climbed 5.3 per cent to HK$4.38 in Hong Kong trading. Sberbank jumped 4 per cent to 104.89 rubles on the Micex Stock Exchange in Moscow. Citigroup climbed 7 cents to $47.79 in Germany.