* MSCI world index sets highest level since Nov 6; ECB eyed
* Banks are top gainers in Europe; US stress tests awaited
* Emerging mkts rally, sovereign debt spreads at 7-mth low
* Oil extends gains above $57/barrel on broad risk revival
By Mike Dolan
LONDON, May 7 (Reuters) - World stocks rose more than one
percent on Thursday to their highest levels of 2009 as investors
bet on a stabilisation of the ailing world banking system,
battered emerging markets and the global economy at large.
The U.S. Treasury is due to release the results of "stress
tests" of its major banks at 2100 GMT. Leaked reports show that
about half will not need new capital and investors were
encouraged by the clarity on how the others would cope with the
most severe recession since World War Two. []
Banking stocks everywhere were buoyed by this and further
signs their businesses improved in the first quarter.
Banks were the top gainers on the European bourses in early
trade. Barclays <BARC.L> was up 5.2 percent after it said its
first quarter profit rose 15 percent from a year ago as strong
growth at its investment bank arm made up for a big jump in bad
debts. []
HSBC <HSBA.L>, BNP Paribas <BNPP.PA>, UniCredit <CRDI.MI>,
UBS <UBSN.VX> and Standard Chartered <STAN.L> were 2.4-3.7
percent higher.
"The overriding thought in the back of our mind is that
these (U.S.) stress tests were probably always going to come up
with a capital-raising figure that was comfortably within the
remaining $110 billion left in the TARP," Deutsche Bank credit
strategists told clients, referring to the money already agreed
by the U.S. Congress to stabilise its banks.
"Where the authorities have been fortunate is that the
economic data seems to be stabilising and the results of the
tests are being released into a market thinking less about the
worst-case scenario," they said.
Markets were further boosted by expectations the European
Central Bank will trim its interest rates by a further quarter
percentage point to 1 percent later on Thursday and possibly
announce some extraordinary measures to get credit flowing. The
decision is scheduled for 1145 GMT.
Together with Wednesday's better-than-expected U.S.
private-sector employment numbers for April, all these signs are
encouraging investors to seek high-yielding, more risky plays
everywhere as they emerge from safe-havens of cash and
government bonds.
"Risk is still in favour this morning," said Investec chief
economist Philip Shaw.
RALLY BUILDS MOMENTUM
At 0845 GMT, European stocks <> were up 1.5 percent
and were on course for a seventh consecutive daily rise.
The MSCI All-World index added 1.1 percent to as high as
239.12 points -- above the previous 2009 peak of 237.84 points
on January 6.
The index has now risen more than 38 percent since its
trough on March 9.
Wall St shares <.SPX> gained almost two percent late on
Wednesday, with a key measure of market volatility and risk, the
so-called Vix <.VIX> or "fear gauge", falling to its lowest
level since September 22 -- shortly after Lehman Brothers filed
for bankruptcy protection and global markets seized up.
Other gauges of risk appetite reinforced the more positive
sentiment. European credit premia fell on Thursday, with the
Markit iTraxx Crossover index of junk-rated credits <ITEXU5Y=GF>
down almost 18 basis points to 752.
Emerging sovereign bonds too have benefited from the rise in
risk appetite with yield spreads versus U.S. Treasuries
narrowing to 475 basis points on JP Morgan's benchmark EMBI Plus
index <11EMJ>. This is a contraction of about 50 bps so far this
month and more than 200 bps since the start of 2009.
Emerging equities extended gains, rising one percent to
fresh seven-month highs <.MSCIEF>. The index has risen over 27
percent since the start of the year.
The relatively high-yielding Australian dollar <AUD=> hit a
7-month high. The euro <EUR=> retreated slightly against the
dollar as the ECB rate cut was awaited.
Lifted by speculation of improved world demand going forward,
U.S. crude oil <CLc1> rose more than 1 percent to $57.93 a
barrel.
The June Bund future <FGBLc1> fell 0.4 percent, as the stocks
boom outweighed likely ECB easing later on Thursday.
"The market now holds the view that the worst may be over, at
least for America. A very strong bull market appears to have
begun," said Fumiyuki Nakanishi, manager at SMBC Friend
Securities in Japan.
(Additional reporting by Jane Baird and Kirsten Donovan;
editing by Chris Pizzey and Andy Bruce)
