* MSCI world equity index highest since Nov 6
* Banks are top gainers in Europe; US stress tests awaited
* UK govt bonds rally, sterling falls after BoE expands QE
By Natsuko Waki
LONDON, May 7 (Reuters) - World stocks rose more than one
percent on Thursday to their 2009 highs as investors bet on a
stabilisation of the world banking system, emerging markets and
the global economy at large.
UK government bonds rallied while sterling fell across the
board as the Bank of England increased the size of its
quantitative easing programme by 50 billion pounds ($75.79
billion) after leaving interest rates on hold at 0.5 percent as
expected.
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. []
A surge in German manufacturing orders underlined an
improving climate for the world economy. Banking stocks led a
rally in stocks while oil hit a 2009 high above $58 a barrel.
"What you have got in the market is increasing optimism. We
have the bank stress tests results today which have seemed to
have been leaked," said Bernard McAlinden, market strategist at
NCB Stockbrokers.
"It is not so much that it is good news, but the market
wants to believe it is final news and it is a manageable thing."
The MSCI main world equity index <.MIWD00000PUS> rose 1.3
percent to hit its highest since early November.
The index, which has now risen more than 38 percent since
its trough on March 9, is in positive territory for the year
with a gain of 4.5 percent.
European stocks <> rose 1.8 percent and were on course
for a seventh consecutive daily rise.
Banks were the top gainers, with Barclays <BARC.L> rising
after reporting a 15 percent rise in its first quarter profit.
Strong growth at Barclays' investment bank arm made up for a big
jump in bad debts. []
U.S. stock futures <SPc1> were pointing to a firmer open on
Wall Street, a day after stocks rallied following positive U.S.
private sector employment numbers for April.
June gilt futures rose 60 ticks <FLGM9> after the BoE's
decision while sterling fell to the day's low of 88.55 pence per
euro <EURGBP=>.
The euro rose 0.4 percent to $1.3357 <EUR=> after the
European Central Bank cut interest rates as expected by 25 basis
points to a record low of 1 percent.
OUT OF CASH
A key measure of market volatility and risk, the VIX <.VIX>
"fear gauge" fell on Wednesday 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 471 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 1.3 percent to
fresh seven-month highs <.MSCIEF>. The index has risen over 27
percent since the start of the year.
All of this is prompting long-term asset managers, who have
shunned equities and risky assets for most of 2008, to get out
of low-yielding cash.
"People can't afford to sit on cash to generate returns,"
said Mark Hussein, head of private wealth management at UK-based
wealth manager Kleinwort Benson.
Elsewhere, the relatively high-yielding Australian dollar
<AUD=> hit a 7-month high against the dollar. The low-yielding
yen fell 0.9 percent to 99.32 per dollar <JPY=>.
U.S. crude oil <CLc1> rose 2.7 percent to $57.87 a barrel
for the first time since mid November, helped by expectations
that economic improvement would boost oil demand.
The June Bund future <FGBLc1> fell 76 ticks.
(Additional reporting by Joanne Frearson and Mike Dolan;
Editing by Ruth Pitchford)
