European Markets Lifted By Credit Easing

A man strolls past a stock board outside a securities firm in Tokyo, Japan, Monday, Sept. 29, 2008. The benchmark Nikkei 225 index fell 149.55 points, or 1.26 percent, to 11,743.61 after spending the morning in positive territory. (AP Photo/Junji Kurokawa)
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LONDON – European stock markets rose Tuesday ahead of Wall Street's open as interbank lending rates continued to decline. Asian stocks were mixed.

The FTSE 100 index of leading British shares was 41.44 points higher, or 1.0 percent, higher at 4,324.11, while Germany's DAX was up 41.63 points, or 0.9 percent, at 4,876.64.

France's CAC-40 index of leading shares rose more strongly after the French government said it would inject a total of euro10.5 billion ($14 billion) into the country's six largest banks by year-end to help counter the effects of the global financial crisis. The CAC was up 81.08 points or 2.4 percent, at 3,529.59, with banks in demand. BNP Paribas SA was up 8.6 percent, Societe Generale SA 11.4 percent and Credit Agricole SA 12.4 percent.

Europe's gains follow the 3.3 percent advance on Japan's benchmark Nikkei 225 index and the 413.20 point, or 4.7 percent, jump in the Dow Jones index Monday to 9,265.43.

However, futures indicated the Dow is expected to give up some of those gains when it opens Tuesday on profit-taking and unease about the health of some major U.S. corporations. Among the companies reporting Tuesday are Caterpillar Inc., Apple Inc., DuPont Co. and Pfizer Inc.

Stock markets overall though continue to be buoyed by the fall in interbank lending rates as they may presage more stable conditions across all the financial markets. "There's a slow trickle of good news coming through, notably with lower Libor rates, but we're not out of the woods yet," said Richard Hunter, a strategist at Hargreaves Lansdown.

Figures released Tuesday show that the lending rates between banks in the U.S. and Europe have dropped to the lowest levels in over a month as credit markets continue to improve.

The rate on three-month loans in dollars has slumped 0.23 percentage points to 3.83 percent. The so-called European Interbank Offered Rate for three-month euro-denominated loans has fallen 0.03 percentage points to 4.968 percent. That is the first time the euro rate has dipped below 5.00 percent since Sept. 18, when it shot higher after Lehman Brothers collapsed.

Overnight, the Hong Kong interbank offered rate, also known as Hibor, for three-month loans continued to slide too, falling from 3.66 percent to 3.35.

Abnormally high interbank lending rates have been a sign of distress in credit markets and been the catalyst for the crisis in the financial markets over recent weeks. High interbank rates can choke off credit to businesses and individuals, hurting the economy.

With Libor rates declining, the focus of attention is shifting from the banking crisis to the economic fundamentals around the world.

In Britain, for example, figures earlier showed that gloom in the maufacturing sector was at its lowest level since 1980. The Confederation of British Industry revealed that its quarterly business optimism balance slumped from minus 40 in June to minus 60 in October.

"To put this into context, the last time manufacturers felt this gloomy was during a period when manufacturing output fell by 16 percent," said Paul Dales, UK economist at Capital Economics.

As a result, there is growing talk that policymakers in Britain will have to act fast to support the real economy. The government has spoken of further loosening the purse strings, while the Bank of England may be forced to cut interest rates aggressively.

There are hopes too that the depth of the U.S. recession may be mitigated by another fiscal stimulus after Federal Reserve Chairman Ben Bernanke said Monday that additional steps might be needed.

In Asia earlier, Japan's Nikkei rose 300.66 points, or 3.34 percent, to close at 9,306.25, marking the third consecutive day of gains.

While shares in most other countries moved higher, several key stock measures sold off early gains to close in the red. Hong Kong's Hang Seng Index lost 1.84 percent, Shanghai's benchmark fell 0.8 percent and South Korea's index shed about 1 percent.

Hong Kong's benchmark was dragged down after conglomerate Citic Pacific Ltd. warned that it could faces losses of more than HK$15.5 billion (nearly $2 billion) after a top executive made unauthorized bets against the U.S. dollar.

In Australia, the main index gained 3.9 percent after the country's central bank chief said he believed coordinated global action to tackle the financial crisis had helped to avert a worldwide catastrophe. Resource giant Rio Tinto helped lead the way, soaring more than 12 percent.

Elsewhere, crude oil prices fell US1.29 to $72.96 a barrel Tuesday on profit-taking after Monday's gains on expectations that OPEC will try to halt a three-month slide in prices by cutting production quotas at least 1 million barrels a day.

The dollar fell 0.8 percent against the yen to 100.97 yen. The euro weakened 0.9 percent to $1.3218.