World stocks rose for a second day Thursday while government bonds fell as expectations grew policymakers would take steps to support European banks, under threat from the impact of a possible Greek default.
German Chancellor Angela Merkel said Wednesday Berlin was ready to recapitalize its banks if needed, adding to pledges by European finance ministers to safeguard banks in the face of mounting concerns about a Greek default [ID:nL5E7L53W7]
The Financial Times reported Thursday that the European Banking Authority, mid-way through a two-day crisis meeting to assess the potential hit of mass sovereign restructurings, is re-examining the strength of the region's banks.
Investors are focusing on euro zone and UK central bank policy meetings for hints on future monetary easing.
A majority of analysts predict the European Central Bank will refrain at least until next month from cutting interest rates and the Bank of England from pumping more money into the economy. But there are those in both markets who see a risk of such moves already Thursday and the ECB is expected to take further steps to help banks.
Hopes for near-term policy measures -- both from politicians and central banks -- are helping investors to take a break from a sell-off triggered by growing concerns about the damage to the banks from any Greek sovereign default.
Significant talk of bank recapitalization is certainly the driving factor behind positive sentiment, said Keith Bowman, equity analyst at Hargreaves Lansdown.
But there is still a lot of uncertainty. Speed is of the essence and that would make a difference. If we see another week or so go by without some significant step forward, that is likely to inject nerves back into the markets.
The MSCI world equity index <.MIWD00000PUS> was up 0.9 percent, having hit a 15-month low earlier this week. The index is around 5.6 percent above this low.
U.S. stock markets also finished higher Wednesday. VIX index <.VIX>, Wall Street's fear gauge, fell 7 percent to 37.81 Wednesday, down sharply from this week's peak of 46.88, lending support to investors cautiously putting some risk back on in the near-term.
European stocks <.FTEU3> rose 0.4 percent and emerging stocks <.MSCIEF> added 2.2 percent.
U.S. crude oil gained a quarter percent to $79.91 a barrel.
Bund futures fell slightly on the day.
Spain will sell up to 4.5 billion euros of bonds, with comments from the IMF that it may buy peripheral bonds seen helping, although the fund later stepped back from a firm pledge to do this.
The dollar <.DXY> against a basket of major currencies
The euro fell 0.2 percent to $1.3324.
Inflation fears may not allow the ECB to cut rates, but we're bound to see some form of support for Europe's banking system -- and that should help the euro rise, said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust and Banking in Tokyo.
(Additional reporting by Atul Prakash; editing by Patrick Graham)