(Updates with Wall Street outlook)
By Jeremy Gaunt, European Investment Correspondent
LONDON, March 25 (Reuters) - Signs of life in the U.S.
housing market combined with JPMorgan's higher bid for Bear
Stearns to push global equity markets up sharply on Tuesday, and
sent corporate debt demand soaring.
The dollar remained weak, however, while euro zone
government bond prices took a hefty hit as equities rose.
European shares, reopening after a four-day weekend, were up
3 percent, following on from strong gains in Asia. Wall Street
looked set for a positive start with data due later on house
prices and consumer confidence.
"Things are looking a little better ... but at the same time
there is a lot that has got investors unnerved," said Peter
Dunay, chief investment strategist at Meridian Partners in New
York.
Markets were driven by Monday's report of a surprising rise
in sales of U.S. pre-owned homes last month.
Some investors took this as a sign that the worst may be
over for the U.S. housing sector, which has been behind much of
the economic and credit worries of recent months.
In addition, JPMorgan <JPM.N> lifted its offer five-fold for
Bear Stearns <BSC.N> to $10 a share, alleviating some concern
about other banking shares.
"It gives people hope that maybe the darkest period is
over," said Hans Kunnen, head of investment markets research at
Colonial First State in Sydney. "But the market is just
operating like a yo-yo within a band. I refuse to get carried
away."
MSCI's benchmark world stock index <.MIWD00000PUS> was up
1.9 percent with its emerging markets counterpart gaining 2.3
percent. The pan-European FTSEurofirst 300 <> gained 3.1
percent. Earlier, Japan's Nikkei average M.N225> closed up 2.1
percent at 12,745.22.
CORRECTING
A lot of crisis pricing in markets appeared to be
correcting, although investors remained cautious.
"This could be a temporary relief. To be convinced that this
is the floor we need more indications that the credit market is
stabilising," said Arthur van Slooten, strategist at Societe
Generale, in Paris.
Credit markets were among the main movers. European credit
spreads surged tighter following a similar move in U.S. credit
spreads on Monday.
The Markit iTraxx Crossover index <ITCRS5EA=GFI>, made up of
50 mostly "junk"-rated European credits, was at 540 basis
points, 53 basis points tighter than last Thursday before the
holiday weekend. The investment-grade iTraxx Europe index
<ITRAC5EA=GFI> was at 112.5 basis points, 19.5 basis points
tighter.
"I am almost speechless. I saw U.S. stocks yesterday and
thought maybe we'd open 5-10 basis points tighter, but this move
... maybe it's overdone," said one trader.
Credit analysts said that increasing actions by governments
and regulators to deal with the credit crisis were finally
affecting spreads, although some still doubted how effective the
rescue moves would be.
BONDS HIT
Euro zone government bond prices fell as equities rose. The
June Bund future <FGBLc1> was down more than 1 point on the day
at 116.47. The interest-rate sensitive-year Schatz yield
<EU2YT=RR> was up 19 basis points at 3.445 percent, while the
10-year Bund yield <EU10YT=RR> rose by 10 basis points to 3.867
percent.
The dollar fell broadly following four days of gains, with
nerves about U.S. economic health still dominating sentiment.
"The negative dollar environment persists. There was
positive housing data but apart from that there is no solid news
to say that there will be a sustained dollar recovery," said
Niels Christensen, currency strategist at Nordea in Copenhagen.
The euro was up more than 1 percent to $1.5590 <EUR=> after
falling as low as $1.5341 in the previous session. The common
currency is down from a record high of $1.5904 hit last week.
Gold prices ticked higher. Spot gold <XAU=> was quoted at
around $933 per ounce, up around $13, but well below the
all-time peak of $1,030.80 an ounce touched earlier this month.
