(Updates prices, adds quotes)
By Mike Dolan
LONDON, March 18 (Reuters) - Global stock markets stabilised
on Tuesday, recouping some of the heavy losses incurred since
last week's near collapse and firesale of investment bank Bear
Stearns <BSC.N> as the Federal Reserve prepared its next move.
With the Fed widely expected to slash U.S. interest rates by
up to a full point to 2 percent on Tuesday, the Dow Jones
Industrial Average <> closed higher on Monday and Wall St
stock futures <SPM8> pointed to a higher open on Tuesday.
European banking stocks <.SX7P> that had been hammered on
Monday also bounced sharply, lifting the broad FTSEurofirst 300
index <> of European shares up more than 2 percent.
Critical to market sentiment before the Fed meets will be
first-quarter earnings from two of Wall St's biggest investment
houses Lehman Brothers <LEH.N> and Goldman Sachs <GS.N>, where
details of further debt writedowns are expected.
"Bank results will be crucial, it will be interesting to see
how much balance sheet contraction there will be with existing
capital already eaten into by writedowns," said David Pais,
currency strategist at Citi.
Lehman results are due at 1200 GMT and Goldman at 1230 GMT.
Lehman shares fell almost 20 percent on Monday as investors
feared wider contagion from the Bear Stearns collapse and
fretted about what other firms might face similar difficulties.
But plummeting U.S. interest rates, which sent three-year
Treasury bill rates <US3MT=RR> briefly below 1 percent to
50-year lows on Monday, continued to weigh on the dollar <.DXY>.
The euro <EUR=> rose more than half a percent to $1.5825
even though it remained below Monday's record of $1.5904.
"There is speculation that the Fed could cut rates by 100
basis points, that's going to put the U.S. as a second lowest
yielding currency in the G10, below even the Swiss franc," said
Geoffrey Yu, currency strategist at UBS in Zurich. "We might be
entering the stage when people will be looking at the dollar as
a funding currency."
Major U.S. economic data releases on Tuesday include
February housing starts and producer price inflation at 1230 GMT
and this adds further risks to the dollar, analysts said.
"It's hard to see what will give the dollar a boost at the
moment," Pais at Citi said.
UNEASY CALM
At 1145 GMT, the FTSEurofirst 300 index was up 2.23 percent
to 1,226.58 points, clawing back some of Monday's 4.4 percent
losses that dragged it to its lowest close in 2-1/2 years.
HSBC <HSBA.L>, UBS <UBSN.VX> and Banco Santander <SAN.MC>
rose 1.8-4.2 percent.
"The slump we had yesterday calls for a rebound, but I doubt
it's sustainable simply due to the ... uncertainty in the
financial sector and the response to what the Fed will do
today," said FrankfurtFinanz strategist Heino Ruland.
Most Asian stock markets closed higher, with MSCI's measure
of Asian stocks outside Japan <.MIASJ0000PUS> rising more than
one percent. Hong Kong's main index <> climbed 1.4 percent
and Japan's Nikkei 225 <> closed up 1.5 percent.
"The Fed is doing everything they can to try to bring
stability to financial markets. But the last few rate cuts
haven't worked, so who knows?" said Lucinda Chan, division
director at Macquarie Equities in Australia.
U.S. crude futures <CLc1> rose 1.4 percent to $107.16 a
barrel, gaining back some of the 4 percent they lost on Monday,
though well off a peak $111.80 hit that session.
But other commodities remained weak after the Reuters
Jefferies CRB Index <.CRB>, which tracks commodities futures,
fell about 5 percent on Monday, its sharpest one-day slide in
almost 40 years.
Gold <XAU=> was quoted at $1,008.80 per ounce, up on the day
but well off the record $1,030.80 it hit on Monday.
(Additional reporting by Rafael Nam in Hong Kong and Simon
Falush, Amanda Cooper and Antonina Vorobyova in London, editing
by Ron Askew)
