Global stocks rally, but not out the woods
Aug 20 07:06 AM US/Eastern
World stock markets roared higher Monday after last week's slump, but analysts warned of further turmoil for share prices owing to lingering concerns about borrowers' failure to repay US home loans.
The London and Paris main indices jumped by around 1.0 percent in morning trade after Tokyo's market closed up 3.0 percent. Wall Street, which enjoyed sharp gains on Friday, reopens at 1330 GMT.
French Finance Minister Christine Lagarde said Monday that the worst of the US mortgage crisis was over even if some US investment houses and funds could still be in trouble.
Despite strong rises for global stocks on Monday, market players stressed the need for caution.
"There's little to suggest that the rampant volatility we've seen of late is yet behind us," CMC Markets trader Adam Neal said.
"Some will be eyeing the significant sell-off as a buying opportunity, whilst the prospect of further credit market problems cannot be overlooked."
In late morning trade London's FTSE 100 index of leading shares stood 0.97 percent higher at 6,123.00 points. The Paris CAC 40 grew 1.04 percent to 5,419.32 points and Frankfurt's DAX 30 gained 0.32 percent to 7,401.04.
European and US equities had risen sharply on Friday after the US Federal Reserve had eased global economic fears by slashing one of its key interest rates.
London's FTSE 100 closed up 3.50 percent ahead of the weekend, after the British index had Thursday plunged by 4.10 percent -- the biggest fall since March 12, 2003 in the run-up to the US-led war on Iraq.
World stock markets had been tumbling since August 9, as concerns mounted over the economic fallout from the weak subprime, or high-risk, home loan market in the United States.
"There is potential for the markets to remain volatile over the next few weeks as investors eye whether or not the central banks across Europe will cut interest rates," said Mark Priest, head of equity sales at Tradindex.
The US Federal Reserve on Friday cut the rate it charges commercial banks to 5.75 percent, saying that it wanted to restore order in financial markets that were hit by "increased uncertainty."
The move raised expectations that the Fed may also lower its key federal funds rate -- the overnight rate banks charge each other -- which has been left unchanged at 5.25 percent since June 2006.
Finance Minister Lagarde meanwhile told French radio on Monday "that the worst of the crisis is behind us."
Earlier in Asian trading, Tokyo saw its biggest single-day points rise since June 2006, recouping more than half of Friday's 5.42 percent plunge. Shanghai leapt 5.33 percent to a record closing high.
"What happened in the markets last week was of cataclysmic proportions," said Mark Cutis, chief investment officer at Japan's Shinsei Bank.
He said that, although Japanese equities looked cheap, last week's sell-off was only "a prelude to what's going to happen."
"We're expecting to see a much more vicious sell-off in October," he added, predicting that the Fed would probably cut its main interest rate in response.
Investors, however, appeared optimistic, chasing shares higher across Asia, eager not to miss a recovery after recent heavy losses.
Hong Kong closed up a huge 5.9 percent, Seoul won 5.7 percent and Sydney jumped 4.6.
"While the US credit market crisis may not disappear overnight, the Fed's (rate) decision ... has demonstrated their will to act and help reduce the uncertainty and volatility in the event that credit markets deteriorate further," DBS Vickers Securities of Singapore wrote in a note to clients.
"This should calm equity markets and end the indiscriminate selling," it said.
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