* MSCI world equity index up 0.8 percent at 192.00
* Hopes for interest rate cuts cushion economic gloom
* Government bonds rally; oil rises from 3-1/2 year low
By Natsuko Waki
LONDON, Nov 21 (Reuters) - European and Asian shares managed
to rise and oil rose towards $50 on Friday as expectations of
further interest rate cuts helped to cushion deepening gloom
about the financial and auto sectors as well as the broader
economy.
On Wall Street, the benchmark S&P 500 index <.SPX> fell to
its lowest level since 1997 as signs of distress in the economy
mounted, led by troubles at Citigroup <C.N> and U.S. automakers.
However, Citigroup, which fell more than 26 percent on
Thursday, rose 6 percent in Frankfurt trading <TRV.F>. U.S.
lawmakers kept alive prospects for a $25 billion bailout plan
for carmakers, although no agreement was reached on Thursday.
Furthermore, hopes that the world's central banks would cut
interest rates further -- with talk that China might lower
borrowing costs later on Friday -- helped world stocks off an
earlier 5-1/2 year low.
"Rumours are only rumours, but investors are always
interested in talk that there will be more official steps that
could help the market rebound further," said Wu Nan, analyst at
Xiangcai Securities.
MSCI world equity index <.MIWD00000PUS> was up 0.8 percent
after hitting its lowest level since April 2003. The
FTSEurofirst 300 index also rose 0.8 percent <>. Emerging
stocks <.MSCIEF> gained 1.8 percent.
U.S. crude oil <CLc1> increased 0.3 percent to $49.55 a
barrel, having hit a 3-1/2 year low below $49 earlier.
Investors sought safer government securities even though
stocks rebounded. The December bund future <FGBLc1> rose 43
ticks while the two-year U.S. Treasury yield <US2YT=RR> touched
a fresh record low of 0.9586 percent.
The 10-year Treasury note dropped a full point in price to
yield 3.112 percent <US10YT=RR>, after hitting 2.990 percent on
Thursday -- its lowest level since the 1950s. The 10-year yield
was trading at above 4 percent only in June.
"The main risk is the recession and that we are probably
ahead of the worst year over the last century in terms of
economic growth and that this will take its toll on many
industries," said Kornelius Purps, fixed income strategist at
UniCredit.
"We are probably only at the beginning of this poor
performance in terms of economic growth and other factors will
follow. This is quite worrisome and will keep a bid in the bond
market."
The yen fell 1.5 percent to 95.11 per dollar <JPY=> after
hitting a three-week high beyond 94 earlier. The dollar <.DXY>
fell 0.5 percent against a basket of major currencies.
LICENCE TO CUT?
Talk of Chinese interest rate cuts complemented a rumour
that authorities might soon announce the creation of a 300
billion yuan fund to support the stock market.
Euro zone interest rates are also expected to fall next
month, and possibly earlier. A PMI survey on Friday showed that
output of euro zone services and manufacturing business sank
much further and faster than expected in November to record
lows.
JP Morgan also said that bigger-than-expected declines in
Canadian inflation also allow the central bank to cut interest
rates more aggressively in December by as much as half a
percentage point.
The Bank of Japan, however, kept its key policy rate
unchanged at 0.30 percent on Friday. Governor Masaaki Shirakawa
said more rate cuts could disrupt markets as they might cause
various problems in ensuring smooth fund supply in money
markets.
(Additional reporting by Emelia Sithole-Matarise; editing by
David Stamp)
