/ 24 January 2008

World stocks surge

Global share prices rocketed on Thursday, though fears of an economic slowdown lingered as Société Générale (SocGen) revealed a massive €4,9-billion fraud-related loss it attributed to one of its traders.

Europe’s leading share indices surged in morning deals, with gains of between 4% and more than 5% after a recovery on the Japanese market and an overnight rebound on Wall Street raised hopes a recent sharp slump on global markets was over.

But Hong Kong share prices reversed course and closed sharply lower on Thursday as its finish coincided with news of a huge fraud and subprime-related losses at Société Générale, dealers said.

The French banking giant said that adding its fraud-related loss of €4.9 billion to the effect of its exposure to the US subprime mortgage crisis its total losses came to almost €-billion in 2007.

“Volatility shows no sign of abating,” said Matt Buckland of CMC Markets in London.

In late morning trade, London’s FTSE 100 index of leading shares was up 3,77% at 5 820,80 points and Frankfurt’s DAX 30 had surged 5,14% to reach 6 770,37. In Paris the CAC 40 jumped 4,85% to 4 861,48 points.

Tokyo’s benchmark Nikkei-225 index rose 2,06% to above 13 000 points, two days after it had slid under the key level for the first time in 28 months.

“Although it’s too early to assess whether the troubles are over, the calming of US markets has positively affected Asian markets,” said Shinichi Ichikawa, strategist at Credit Suisse First Boston.

Seoul finished up 2,1%, Taipei gained 1,47% and Sydney rose 3,1%. However Hong Kong share prices closed down 2,3%.

“The news from SocGen about the brokerage fraud and subprime losses again turned sentiment negative,” said YK Chan, strategist with Philip Capital Management.

“Investors are still very nervous and any bad news from the US or Europe is enough reason for them to sell,” he said.

Trading in shares of Société Générale was suspended on Thursday after the group said a sole rogue trader had been responsible for racking up the fraudulent losses. The bank later opened 3,64% in negative territory.

World stock markets saw another tumultuous day Wednesday, as Wall Street roared back in a powerful late-day rally. European shares plunged following signals from the European Central Bank that eurozone interest rates were not about to come down.

But on Thursday Europe’s main stock markets enjoyed a turnaround as the value of banking shares increased sharply. Banks have been among the worst hit companies as a result of a squeeze on global credit caused by the US home-loan crisis.

With global markets in turmoil on concern that fall-out from the US housing market meltdown will force the world’s biggest economy into recession and possibly lead to a global economic slowdown, the US Federal Reserve on Tuesday slashed American borrowing costs.

The US central bank unexpectedly cut its base rate by 0,75 percentage points, the biggest decrease since the Fed began using the federal funds rate as its main policy tool in the 1990s.

On Wall Street, the Dow Jones Industrial Average closed up 2,5% on Wednesday, surging back from opening losses of over 300 points.

The tech-heavy Nasdaq gained 1,05% and the broad-market Standard & Poor’s 500 index rose 2,14%.

“Mood swings are very extreme,” said Andrew Clarke, a sales trader at SG Securities in Hong Kong. “Most investors are still nervous about the US economy. They are still divided on where the US stock market is going.”

Markets expect the US central bank to follow Tuesday’s cut by another cut of at least 25 basis points next Wednesday. The combined cut would be the steepest short-term reduction since 1982.

Investors were also to watch US President George Bush’s State of the Union address next Monday for clues on whether there are more fiscal policies to come to ward off a recession. — AFP