Europe Up Strongly With Asia Trading Near Flat Line

Banks lead the way

By Daniel Hauck

May 8 (Bloomberg) — Stocks climbed around the world after Federal Reserve Chairman Ben S. Bernanke said the U.S. review of the banking industry’s health “should provide considerable comfort.” Oil rose, heading for its biggest weekly gain since March, on speculation the recession is easing.

The MSCI World Index of 23 developed nations increased 0.6 percent at 12:14 p.m. in London, while the MSCI gauge of emerging markets was set for the biggest weekly advance in five months. Futures on the Standard & Poor’s 500 Index added 1.3 percent as Citigroup Inc. and Bank of America Corp. rose in German trading. Crude advanced 2.2 percent to $57.96 a barrel in New York.

U.S. employers probably eliminated fewer jobs in April as signs emerged that the worst of the recession has passed, economists said before a government report today. American banks need to raise a total of $74.6 billion in capital, a finding that Bernanke said should reassure investors about the soundness of the financial system.

“If today’s non-farm payroll figure comes in at or below expectations, it could extend” the rally, Citigroup strategists Todd Elmer, Michael Hart and Jim McCormick wrote in a report today from New York. The results of the stress tests were “some distance short of the horror scenario some market participants might have anticipated.”

Citigroup climbed 13 percent to $4.30 in pre-market New York trading after the Fed said the New York-based bank needs $5.5 billion in additional capital. Charlotte, North Carolina- based Bank of America, which requires $33.9 billion, rose 13 percent to $15.26.

RBS Climbs

Europe’s Dow Jones Stoxx 600 Index climbed 1.8 percent, led by Edinburgh-based Royal Bank of Scotland Group Plc. The biggest bank owned by the British government surged 14 percent to 47.5 pence after saying that first-quarter revenue rose 26 percent, lifted by “exceptional” growth at the global banking and securities unit.

The MSCI Asia Pacific Index increased for a fifth straight day, rising 0.6 percent. Tokyo-based Mizuho Financial Group Inc. gained 6 percent to 246 yen. Taiwan’s Taiex stock index rose 0.2 percent, completing its best weekly gain since October 2002, after the government said Chinese investments will be allowed for the first time since the civil war ended in 1949.

The dollar fell 0.1 percent against the euro to $1.3415, headed for a third weekly decline, the longest run of losses this year, as speculation the pace of U.S. job losses is slowing sapped demand for the currency as a refuge. Payrolls fell by 600,000 in April, after a 663,000 drop in March, according to the median estimate of 70 economists in a Bloomberg News survey.

Treasuries, Ruble

Treasuries were little changed, with yields on 10-year notes on course for a seventh week of gains, the longest stretch in five years. The 10-year yield was at 3.34 percent.

The MSCI Emerging Markets Index added 0.7 percent, extending the weekly gain to 8.6 percent, the steepest climb since Dec. 12. The ruble strengthened 0.2 percent to 37.4993 against the dollar-euro basket used to limit swings that disadvantage exporters.

Russia’s ruble advanced for an 11th week, the longest series of gains against the central bank’s dollar-euro basket since its introduction in 2005.

“Slowly there have been signs that the economy is troughing, that the worst is behind us,” said Roberto Lampl, a fund manager who helps oversee about $12 billion in emerging- market assets at ING Investment Management in The Hague. “It’s been a big, risk-seeking relief rally.”

Default Swaps, VIX

The cost of protecting European high-yield bonds from default fell, capping the biggest weekly decline since April 2008, according to JPMorgan Chase & Co.

The Markit iTraxx Crossover Index dropped 13 basis points today, and 93 basis points in the week, to 722, signaling an improvement in perceptions of credit quality.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year.

Options traders are increasing wagers that the S&P 500’s 34 percent rally in the past two months is coming to an end. Futures on the Chicago Board Options Exchange Volatility Index are priced above the gauge’s level of 33.44, according to data compiled by Bloomberg. The so-called VIX, which measures the cost of using the options as protection against market declines, has dropped 16 percent this year in CBOE trading.