* MSCI world equity index up 3 pct
* Euro, oil rise; bond prices fall
* MSCI emerging equities index soars 9.3 pct
By Dominic Lau
LONDON, Oct 30 (Reuters) - World stocks and the euro rallied
on Thursday, boosted by sweeping gains in emerging markets after
the U.S. Federal Reserve cut interest rates and opened swap
lines to four developing economies.
The Fed slashed half a point off the fed funds rate to 1.0
percent and left the door open to further cuts, renewing
weakness in the dollar but improving risk appetite as carry
trade-favourite yen softened.
Japan and Germany also said they would plough billions of
dollars into their economies, hoping to provide a cushion
against a deep recession and complement a series of expected
interest rate cuts. []
"The Fed gave the market what it wanted and at the margin
we're seeing more positive sentiment creeping back in. But
underlying it all are deep-seated fears about global recession,"
said Nicola Chadwick, international economist at CBA.
The MSCI world equity index <.MIWD00000PUS> rallied by 3
percent, driven by gains of over 9 percent in the benchmark
emerging equities index <.MSCIEF>.
Emerging equities have bounced by nearly 22 percent from
four-year lows set on Tuesday.
They got a further boost from the International Monetary
Fund's approval of a short-term financing facility for emerging
market economies that have a good economic track record but are
having difficulties accessing credit. []
The Fed also opened up dollar liquidity aid beyond
traditional markets, with four new $30 billion currency swap
lines with Brazil, Mexico, South Korea and Singapore.
GDP EYED
An economic reality check is likely to come from U.S.
third-quarter growth figures at 1230 GMT, with economists
expecting a decline for GDP of 0.5 percent.
Many see that as the start of a nine-month contraction, or
possibly even longer.
"Widespread weakness across core economic sectors...are
likely to reinforce expectations that the economy is at the
start of a deep and prolonged recession," said Lena Komileva, G7
econonist at Tullett Prebon in a note to clients.
The euro rose 1 percent to $1.3088 <EUR=> within a broad
rally among higher-yielding currencies, but the U.S. currency
gained 1.2 percent to 98.60 against the low-yielding yen <JPY=>.
The FTSEurofirst 300 <> index of leading European
shares rose 2.1 percent, extending its rally into a third day,
helped by rising commodity prices.
China, Hong Kong, Norway and Taiwan also cut rates in the
past 24 hours, and pressure mounted on the Bank of Japan to
reduce rates after it meets on Friday. Asian equity markets
surged, with Japan's Nikkei average <> up 10 percent.
The European Central Bank and the Bank of England are also
expected to cut rates next week.
But analysts cautioned that investors had taken the chance
to go bargain-hunting, and markets remained volatile.
"This is a fantastic rally, but it is only a rally," said
Justin Urquhart Stewart, director at Seven Investment
Management.
"The rate cuts are encouraging. But we're dealing with a
slump. It's not a matter of whether it's bad, it's a matter of
how bad."
The euro zone's business climate indicator fell more sharply
than expected in October to its lowest figure in seven years.
Highlighting the tough environment, Germany's BASF <BASF.DE>
was the latest chemicals group to give a more cautious outlook
for 2008 earnings as car makers and builders, its key customers,
suffered in the global economic crisis.
Oil rose by $0.59 a barrel to $67.90 <CLc1>, while euro zone
government bond futures <FGBLc1> fell 48 ticks to 116.48, in
line with weaker U.S. Treasuries after the Fed cut.
Emerging sovereign debt spreads, a measure of appetite for
higher-risk assets, tightened by a hefty 47 basis points to 685
bps over U.S. Treasuries <11EMJ>.
(Additional reporting by Simon Falush and Carolyn Cohn; Editing
by Victoria Main)
