By Jeremy Gaunt, European Investment Correspondent
LONDON, March 12 (Reuters) - World equity markets rose on
Wednesday in reaction to large gains on Wall Street which
followed U.S. Federal Reserve-led moves to inject billions of
dollars of liquidity into cash-starved credit markets.
Oil stayed close to its near-$110 a barrel record high but
the dollar eased back after gaining in the previous session, as
currency traders became sceptical about whether the measures
could solve problems in the economy or the credit market.
Deep concerns among investors about the threat of another
round of last year's credit crisis were at least temporarily
assuaged when the Fed said on Tuesday it would allow financial
firms to swap securities backed by home mortgages for some $200
billion in Treasury bonds.
This was supported by other liquidity-inducing efforts by
the European Central Bank, Bank of Canada, Bank of England and
Swiss National Bank.
The moves spurred the S&P 500 <.SPX> index of leading U.S.
stocks to its biggest daily gain since October 2005 with a 3.71
percent rise, a mood that continued to spill over into the rest
of the world on Wednesday.
"The Fed's decision to get funds for credit markets has
soothed investor sentiment," said Hwang Geum-dan, an analyst at
Samsung Securities in Seoul, adding that economic fundamentals
nonetheless remained grim.
Europe's FTSEurofirst 300 <.SPX> index was up 1.4 percent,
having gained the same amount on Tuesday. Earlier, Japanese
stocks rose 1.6 percent with the benchmark Nikkei <> rising
202.85 points to 12,861.13 and the broader TOPIX climbing 19.98
points to 1,255.13.
Despite the immediate euphoria, stressed world credit
markets -- where trading in a broad range of securities
including some euro zone government bonds and U.S. municipal
bonds had seized up over the past week -- remain a concern to
investors.
Credit Suisse, for example, said it did not believe the
problems would go away. "We expect to see more hedge fund
collapses, more forced sales and more extreme price movements in
the near term," it said in a note.
DOLLAR, OIL DECLINE
The dollar, which has been battered by the deteriorating
U.S. economy and prospects of lower U.S. interest rates, eased
back towards record lows versus the euro as a pick-up in risk
appetite prompted by the central bank measures petered out.
"It's a bit of a reality check. The Fed's action obviously
is welcome but it doesn't really fix the economy," said Martin
McMahon, FX strategist at Credit Suisse in Zurich.
The dollar fell 0.3 percent against a basket of six major
currencies to 73.039, edging towards a record low of 72.462 set
at the end of last week <.DXY>.
It also eased 0.2 percent to 103.16 <JPY=>. The euro was up
a quarter of a percent on the day at $1.5368 <EUR=>.
Oil prices were steady after hitting a record near $110
overnight, doing little to ease concerns about the world
economy. U.S. crude for April delivery <CLc1> was up 37 cents at
$109.12 a barrel, just below its record $109.72.
Euro zone government bonds were trying to consolidate at
lower levels after a sharp sell-off the previous session.
The June Bund future <FGBLM8> was 9 ticks lower at 117.37.
Two-year yields <EU2YT=RR> were 5.6 basis points higher at 3.383
percent, while 10-year yields <EU10YT=RR> were flat at 3.800
percent.
