* Stocks rise in volatile trade on lower money rates, oil
* European stock volatility indexes soar to records, like US
* Investor Buffett says he's buying US stocks
* Interbank lending rates in euros and dollars falls further
By Mike Dolan
LONDON, Oct 17 (Reuters) - Stock markets climbed around the
world on Friday, taking their lead from Wall St's late rally the
previous session and helped by easing interbank lending rates,
lower oil prices and encouraging earnings from technology firms.
But extreme market volatility remained the dominant feature
as stocks were buffeted by both fears of deep economic recession
and hopes the financial crunch is finally starting to ease
following dramatic government and central intervention in the
banking system over the past week.
Key measures of stock market volatility, gleaned from the
options market, have skyrocketed this week. The Chicago Board
Options Exchange Volatility Index, known as the VIX <.VIX>, set
a record of at 81.27 percent on Thursday. This so-called "fear
gauge" was as low as 20-25 percent right through August.
The German Dax equivalent index <.V1XI> was equally
supercharged and set a record high of 85.12 percent on Friday.
"This is the most volatile week we've seen," said Thierry
Lacraz, strategist at Swiss bank Pictet in Geneva. "The sole
intelligent thing is to remain on the sidelines and not make any
huge bets."
"The global economic environment is still very negative,
especially in the United States."
EUROPE, ASIA STABILISES
MSCI's main world stock index <.MIWD00000PUS>, which has
lost more than 40 percent of its value this year, was up 0.7
percent on the day.
The pan-European FTSEurofirst 300 <> gained 2.26
percent and Japan's benchmark Nikkei <> closed up 2.8
percent after losing more than 11 percent on Thursday.
Futures for the Dow Jones industrial average <DJc1>, the
Nasdaq 100 <NDc1> and the S&P 500 <SPc1> share indexes all
indicated a lower start on Wall Street later, however.
In extended trade on Thursday, shares in IBM <IBM.N> rose
1.7 percent, Google Inc <GOOG.O> gained 7.5 percent and Advanced
Micro Devices <AMD.N> was up 7.4 percent after their results
beat Wall Street estimates.
But at 1230 GMT, the U.S. Commerce Department is scheduled
to release housing starts and permits for September and
economists in a Reuters survey forecast a median fall to 880,000
housing starts from 895,000 in August.
"There's still nervousness in the market about the real
economy, but in terms of valuations the price is good right
now," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ
Securities in Japan.
And those hopes that long-term value investors, who can
tolerate withering day-to-day volatility, may start to look at
the market were boosted on Friday.
In an opinion column in Friday's New York Times, billionaire
investor Warren Buffett said he was now buying U.S. stocks.
"A simple rule dictates my buying: Be fearful when others
are greedy, and be greedy when others are fearful," Buffett
wrote in the paper.
"What is likely...is that the market will move higher,
perhaps substantially so, well before either sentiment or the
economy turns up," he said. "So if you wait for the robins,
spring will be over.
INTERBANK THAW
Signs of the first substantial thaw in that credit winter
were also seen on Friday and encouraged optimists that the worst
of the financial freeze, if not the economic recession, was at
least at hand.
The interbank cost of borrowing dollars, euros and sterling
<LIBOR> fell across all maturities up to one year again on
Friday, most notably at the very short end, the British Bankers
Association's daily fixing showed on Friday.
Interbank lending rates have eased this week in response to
governments' aggressive steps to unclog money markets, with the
effect particularly noticeable for the shortest lending periods.
The premia of three-month London interbank offered rates for
dollars and euros over anticipated central bank rates or
Overnight Index Swap OIS rates -- seen as a gauge of banks'
willingness to lend to each other -- also narrowed on Friday.
"We're seeing bits and pieces (of short-term lending
activity) but there's a long way to go," said one money trader.
"There's a lot of risk aversion out there even though we
have a lot of guarantees in Europe. We want to see details of
these plans. We've had the headlines but we need the nitty
gritty details, what it covers, who it covers."
YEN RISES, OIL STEADY AFTER PLUNGE
US crude oil prices <CLc1> clawed back above $70 per barrel
on Friday, helped by growing expectations for an OPEC production
cut, after plunging to a 16-month low of $68.57 on Thursday.
The yen rose on Friday as stocks gave up much of their early
gains, highlighting an ongoing slump in risk appetite due to
fears of a global recession.
Investors were wary that bank bailouts by governments around
the world would come at a high cost to an already slowing global
economy. As a result, an ongoing reversal in risky trades
boosted the low-yielding Japanese currency, pushing it higher in
volatile trade.
"We're still in an incredibly unstable market which will
persist for a long time. Although we've had all these policy
initiatives, it won't necessarily stop the extreme moves we've
seen across the markets," said Bilal Hafeez, foreign exchange
strategist at Deutsche Bank in London.
The dollar was firmer against other major currencies <.DXY>
and euro zone government bonds slipped.
(Additional reporting by Jeremy Gaunt; Editing by Ron Askew)
