(Updates with ADP, EU sources comments)
By Natsuko Waki
LONDON, April 2 (Reuters) - World stocks leapt to a
one-month peak on Wednesday and the dollar rose, while
save-haven government bonds fell after a survey showed an
unexpected gain in U.S. private-sector jobs in March.
The report by ADP Employers Services, coming ahead of
Friday's official U.S. jobs data, showed U.S. private-sector
employers added 8,000 jobs in March, after cutting 18,000 in
February.
It added to investor optimism fanned by major banks' efforts
this week to come clean about their financial woes and raise
fresh capital relieved investors.
"It's another piece of positive news for the U.S.," said
Brian Dolan, chief currency strategist at Forex.com in
Bedminster, New Jersey.
The FTSEurofirst 300 index <> extended gains to 1.1
percent on the day after the report while the MSCI main world
equity index <.MIWD00000PUS> rose more than 1 percent to its
highest level since late February.
U.S. stock futures <SPc1> erased early losses to point to a
firmer open on Wall Street later. On Tuesday, U.S. stocks posted
their biggest one-day rally since March 18.
The dollar hit a one-week high against a basket of major
currencies <.DXY> before trimming gains as optimism grew about
the health of the banking sector and the U.S. economy.
The euro was down 0.2 percent $1.5581 <EUR=> after EU
sources said euro zone finance ministers and the European
Central Bank would voice concern at the next Group of Seven
meeting about the euro's recent sharp gains.
BANKS' EFFORTS
Tuesday's $19 billion writedown by UBS <UBSN.VX>,
revelations of a bigger-than-expected writedown at Deutsche Bank
<DBKGn.DE> and Lehman Brothers' <LEH.N> success in raising $4
billion of fresh capital all helped to boost expectations that
the worst of the eight-month-old credit crisis might be over.
"There's a growing sense of optimism in the market, rightly
or wrongly, that the worst of the financial crisis is over ...
and that's raising the market's risk appetite," said Adam Cole,
global head of FX strategy at RBC Capital Markets.
Expectations that the G7 rich nations might launch a big
mop-up operation to support financial markets with public money
also improved sentiment.
G7 finance chiefs meet in Washington later this month.
A series of liquidity injections by the world's major
central banks have helped to ease strains in the money markets.
after interbank lending rates rose sharply in the run up to the
end of the first quarter.
The cost of borrowing very short-term dollar, euro and
sterling funds fell for a second day <LIBOR> as quarter-end
funding pressure faded and after the European Central Bank moved
to ease funding strains.
However, three-month dollar and euro borrowing costs rose.
"We see upside risk to money market spreads going forward
due to a range of risk factors, including monoliners, credit
spread worries, and annual bank statements," Danske Bank said in
a note to clients.
"On the other hand, central banks have shown great resolve
and determination. Further problems will probably be met by more
initiatives. Most likely the problems will linger on for a
protracted period."
In the fixed income market, the benchmark 10-year U.S.
Treasury <US10YT=RR> fell 11/32 in prices for a yield of 3.60
percent. Government bonds were sold off this week as optimism
grew about the banking sector health and the U.S. economy.
"Bonds have come a long, long way and even the bullish
clients we speak to regularly are starting to take profits at
the long end of the curve," David Rosenberg, North American
economist at Merrill Lynch, said in a note to clients.
Junk bond spreads widened 200 bps in the first quarter and
investors have priced in an excessive 10 percent default rate
while investment-grade spreads had also widened, he noted.
The June Bund future <FGBLM8> was down 18 ticks on the day.
Energy and commodity prices recovered from Tuesday's
sell-off, providing support for emerging markets.
U.S. crude oil rose 0.7 percent to $101.73 a barrel <CLc1>,
while gold <XAU=> recovered to $890.50 an ounce after falling
three percent on Tuesday.
Firmer commodity prices buoyed emerging market assets.
MSCI's emerging stock index <.MSCIEF> rose 1.9 percent while
emerging sovereign spreads <11EMJ> tightened 4 basis points.
(Additional reporting by Naomi Tajitsu, editing by Mike
Peacock)
