Oct. 30 (Bloomberg) -- European stocks rallied for a third day as central banks from Washington to Hong Kong cut interest rates and the Federal Reserve provided $120 billion to South Korea, Singapore, Brazil and Mexico to unlock lending in emerging markets.

BHP Billiton Ltd. and Xstrata rose at least 5 percent as lower borrowing costs bolstered prospects for the global economy. Deutsche Bank AG soared 18 percent and Alcatel-Lucent SA jumped 20 percent and after the companies reported better-than-expected earnings.

``The coordinated actions around the world continue to give investors some hope,'' said Richard Wilson, who manages $2.5 billion at Threadneedle Asset Management in London. ``In the short term we could be at a turning point in the markets,'' he told Bloomberg Television.

The Stoxx 600 increased 1.2 percent to 216.24, as almost four stocks gained for every one that fell. The index is still down 41 percent in 2008, headed for the worst year since records began in 1987.

The VStoxx Index, which measures the cost of using options as insurance against decline in the Euro Stoxx 50, dropped 6.9 percent to 66.14, its lowest in a week.

A report today showed the U.S. economy shrank less than forecast in the third quarter. Gross domestic product contracted at a 0.3 percent annual rate from July to September, compared with a 0.5 percent contraction predicted in a Bloomberg surveyed.

National Markets

National benchmark indexes climbed in 15 of the 18 western European markets. The U.K.'s FTSE 100 added 1.2 percent, while Germany's DAX rose 2.8 percent with Metro AG and MAN AG posting results that topped expectations. France's CAC 40 added 0.2 percent.

Central banks in Taiwan and Hong Kong followed China in lowering borrowing costs in an effort to curb the economic slowdown. Hong Kong's Hang Seng Index surged 13 percent, and Taiwan's Taiex Index gained 6.3 percent.

Fed Chairman Ben S. Bernanke signaled he's ready to keep cutting rates should yesterday's half-point reduction in the main rate to 1 percent fail to stem the deepening economic slump.

The Fed said it agreed to provide $30 billion in ``liquidity swap facilities'' with the central banks of the four countries effective until April 30. The arrangements aim ``to mitigate the spread of difficulties in obtaining U.S. dollar funding,'' it said.

Bear Market Exit

The MSCI Emerging Markets Index climbed the most in six weeks, advancing 9.2 percent. The index surged more than 20 percent in three days, bringing it out of a bear market. Russia's Micex index jumped 19 percent, and Turkey's ISE National 100 Index rose 7.4 percent.

Declines in money-market rates and higher corporate borrowing in the commercial paper market indicated the paralysis in credit markets has continued to ease.

The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars slipped 23 basis points to 3.19 percent, its 14th straight drop, according to the British Bankers' Association.

The comparable euro interbank offered rate, or Euribor, fell more than 3 basis points to 4.79 percent, the lowest level since April 18, according to the European Banking Federation. Hong Kong's also declined.

U.S. commercial paper outstanding rose by $100.5 billion, or 6.9 percent, to a seasonally adjusted $1.55 trillion for the week ended Oct. 29, the Fed said. Borrowing soared the most on record after the central bank began buying the debt directly from issuers.

BHP Billiton, the world's biggest mining company, advanced 5 percent to 1,008 pence. Xstrata, the world's fourth-largest copper producer, rose 8.2 percent to 960 pence. Rio Tinto Group, the third-largest mining company, gained 3.3 percent to 2,766 pence.

`Pretty Rosy'

``It's looking pretty rosy,'' said Tom Hougaard, chief market strategist at City Index, a spread-betting firm in London. ``It looks like this rally has got some legs to run on, rather than just being a dead-cat bounce,'' he told Bloomberg Television.

More than $12 trillion was erased from the market value of equities worldwide as of Oct. 27, accounting for about one-third of the total value wiped off stocks this year, as $687 billion of writedowns and losses by banks triggered a freeze in credit markets, threatening economic growth.

Some investors expect the bounce-back will be short-lived as third-quarter earnings provide more evidence that the slowing economy is taking its toll on corporate profits.

`Patchy' Earnings

``It will be difficult for us to have a sustained rally,'' said Hugh Yarrow, a fund manager at Rathbone Unit Trust Management, whose parent company Rathbone Brothers Plc has about $22.3 billion. ``There was some quite positive news from Asia with the central banks and the Fed. But the economy is slowing down and corporate news is patchy at best.''

Earnings for the 656 companies in western Europe that reported results since Oct. 7 declined 7.6 percent on average, trailing analysts' expectations 3.9 percent, according to data compiled by Bloomberg data. In the U.S., profit fell 18 percent, missing estimates 1.5 percent, the data show.

Deutsche Bank climbed 18 percent to 29.20 euros. Germany's biggest bank posted a surprise third-quarter profit following new accounting rules that allowed it to book fewer asset writedowns.

Alcatel-Lucent advanced 20 percent to 2.02 euros. The world's largest supplier of fixed-line phone networks reported a third-quarter net loss of 40 million euros ($52.7 million), narrower than the 73 million loss forecast by analysts surveyed by Bloomberg.

Metro, MAN

Metro, Germany's biggest retailer, rallied 15 percent to 25.40 euros. Net income was 126 million euros in the third quarter, beating the 108 million-euro median estimate of seven analysts surveyed by Bloomberg News.

MAN climbed 6.2 percent to 36 euros. Europe's third-largest truckmaker said quarterly profit rose 34 percent to 298 million euros on higher commercial-vehicle sales.

AstraZeneca Plc climbed 5.2 percent to 2,550 pence. The U.K.'s second-biggest drugmaker reported earnings that beat analysts' estimates and increased its forecast for full-year earnings.

Profit for companies in the Stoxx 600 will probably fall 5.2 percent in 2008, down from 11 percent growth predicted at the start of the year, according to analysts' estimates compiled by Bloomberg. The S&P 500 companies may report earnings declined 6.8 percent, down from 15 percent growth expected at the beginning of the year, the data show.

Elan Corp. lost 16 percent to 4.92 euros after Biogen Idec Inc. said a patient taking its multiple sclerosis drug Tysabri was diagnosed with a life-threatening brain illness, the third case reported since July. Tysabri accounted for 64 percent of third-quarter revenue for Elan.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

Last Updated: October 30, 2008 13:12 EDT