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GLOBAL MARKETS-World stocks gain as record quarter ends

Published 06/30/2009, 07:45 AM
KBC
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* MSCI world equity index up 0.5 percent

* Index eyes strongest quarterly gain since 1988 launch

* Oil tops $73 on surge in trading volume

By Carolyn Cohn and Mike Dolan

LONDON, June 30 (Reuters) - MSCI's world equity index was set on Tuesday to cement its best quarterly gain since its 1988 launch as it pushed higher on the final day of a quarter that saw markets rally on a stabilisation of the world economy.

Reinforcing the view the worst of the credit crisis and subsequent world recession may finally be passing, crude oil prices were on course for their strongest quarter in 19 years.

Investors have detected signs of a freeing up of primary bond and credit markets, a cyclical, inventory-driven rebound in manufacturing, an easing of the housing market attrition and some rebound in business and consumer confidence.

Stirrings in the real economy show the authorities have gained traction against the downturn via extraordinary monetary policies, where official interest rates are near zero and long-term borrowing rates have been capped by so-called quantitative easing.

Together with massive fiscal stimuli from the United States, China, consumer spending has steadied and demand for raw materials has rebounded.

Sharply lower volatility, as measured by Wall St equities' VIX index, has also encouraged a mass exodus of investment money back out of safe-haven bunkers such as money market funds and back to higher-yielding and more risky equity and bond markets. To see a table on Q2 market moves click on

Reuters June polls of asset managers, released on Tuesday, showed investors put a greater share of their funds into stocks, bonds and alternative investments than at any time since the financial crisis blew up in the summer of 2007.

"The first half of 2009 is ending on a far more positive note than it began," said Mitul Kotecha, head of global foreign exchange strategy at Calyon.

"Confidence has improved, data releases especially in Q2 2009 have revealed a much smaller pace of deterioration...risk appetite is set to improve further in H2 2009 but, as with economic recovery, the improvement will be gradual and prone to setbacks."

UPBEAT AT HALF-YEAR

The world equity index, up 0.4 percent by 1100 GMT on Tuesday, has risen over 22 percent in the past three months, and is up 9 percent on the year, after suffering its worst quarter on record in the last three months of 2008.

Risky emerging stocks have put in an even stronger performance, gaining over 34 percent on the quarter and around the same amount on the year. The emerging market index edged up a further 0.25 percent on Tuesday.

"Broader stability is helping to support gains in risk assets," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

In Europe, the final day of the quarter was more muted and the FTSEurofirst 300 index was little changed. Yet at a rise of over 17 percent in the last three months was eyeing its best quarterly gain since Q4 1999.

"We are still living under a credit crunch and the central banks have very little choice but to keep interest rates quite low for some time," said Luc Van Hecka, chief economist at KBC Securities. "That may be one of the major fundamental reasons why asset markets have a tendency to remain underpinned."

Wall St futures also were set to open higher later on Tuesday after gains of almost one percent on Monday were driven by oil stocks.

On Tuesday, oil prices leapt more than 2 percent to an eight-month high above $73 a barrel before trimming gains on the final day of its best quarterly gain in 19 years.

Trading volume in both Brent and U.S. crude oil futures surged to more than 10 times the norm for the Asian time zone.

The safe haven U.S. dollar was weaker, dropping 0.3 percent against an index of currencies and down 7 percent on the quarter.

The pound hit its highest in 8 months above $1.6740 after Nationwide data showed UK house prices surprisingly rose a second month in June.

The euro gained 0.2 percent to $1.4106 and the dollar fell 0.6 percent to 95.57 yen.

Euro zone government bond futures steadied at levels little changed on the day after recovering early losses..

(Additional reporting by Jeremy Gaunt, Atul Prakash and Tamawa Desai; editing by Chris Pizzey)

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