LONDON, (Reuters) – World stocks rose to a one-week high on Thursday after better-than-expected corporate earnings announcements reassured investors that companies around the world are holding up despite the credit crisis.
The dollar fell towards Wednesday’s record low against the euro near $1.60, with recent weakness in the U.S. currency helping to drive up oil prices to new record highs above $115 a barrel.
Better-than-expected results from tech bellwethers Intel on Tuesday and IBM on Wednesday added to a recent list of positive surprises in first-quarter earnings, feeding optimism that tighter lending and credit conditions are not affecting the economy as much as many had feared.
Results from the banking sector — the epicentre of the eight-month-old credit crisis — showed financial firms are scrubbing their books clean to deal with problems.
“What the market is most sensitive to in this earnings cycle is any hint, any sign that we’re past the worst for the financial sector. Even more so, the concern for the rest of the market is the degree to which earnings are holding up,” said Bernard McAlinden, strategist at NCB Stockbrokers in Dublin.
The FTSEuro first 300 index rose 0.4 percent while MSCI main world equity index rose 0.3 percent to a one-week high.
The dollar fell 0.1 percent at $1.5963 per euro after hitting all-time lows of $1.5977 on Wednesday.
Daily fixing of interbank reference rates in London due just before 1100 GMT LIBOR is set to attract attention as concerns about the credibility of the rates are affecting some interest rate markets.
The spread on two-year U.S. interest rate swaps widened sharply on Wednesday to their widest level in about five weeks as a result of these concerns.
In recent months, market participants have questioned the validity of the LIBOR rates, at which banks offer to lend unsecured funds to each other and which are used for setting prices of a wide range of financial instruments.
Critics say LIBOR rates come from a small group of banks and do not accurately reflect the rates at which banks are willing to lend to each other, especially in times of stress. The British Bankers Association said it had brought forward a review of its setting process.
Since the credit crisis broke in August, a gap between LIBOR rates and Overnight Index Swaps — a short-term benchmark rate for secured funds — has widened to more than 100 basis points.
European credit spreads improved, with the iTraxx Crossover index tightening 10 basis points to 496 bps.
Emerging sovereign spreads 11EMJ were steady while emerging stocks were up 0.7 percent.
The June Bund future FGBLM8 was steady on the day.
U.S. light crude had risen as high as $115.21 a barrel before trimming gains to stand steady on the day.
The dollar’s weakness and a fall in U.S. gasoline stockpiles just weeks ahead of the summer driving season have attracted fresh fund buying.
Gold edged higher to $944.50 an ounce.