Emerging Stocks Advance as Central Banks Reduce Dollar Funding Costs

Emerging-market stocks advanced, paring a monthly loss, as the Federal Reserve and five other central banks cut the cost of emergency dollar funding for European banks to help alleviate the region’s debt crisis.

The MSCI Emerging Markets Index (MXEF) gained 2.1 percent to 928.32 by 4:52 p.m. in New York, reducing its drop in November to 6.7 percent. Brazil’s Bovespa index rose 2.8 percent, the biggest gain in a month, and Mexico’s IPC index (MEXBOL) added 3.1 percent. The Micex index advanced 3.1 percent in Moscow, led by resources companies as commodities prices advanced. The FTSE/JSE Africa All Share Index jumped 3.7 percent in Johannesburg, while the WIG20 Index (WIG20) climbed 4.8 percent in Warsaw after a report showed third-quarter economic growth grew faster than analysts expected.

The outlook for developing markets got a boost after the six regulators, including the Bank of Japan and the Swiss National Bank, cut the interest rate to the dollar overnight index swap rate and extended the program aimed at easing access to cash until 2013. China also reduced the amount banks are required to keep in reserve for the first time since 2008 as the euro-area crisis threatens exports and growth in the world’s fastest growing major economy.

The move by global central banks “shows there is concerted international action and that’s what people want to see,” Simon Quijano-Evans, the chief economist and head of emerging markets research at ING Bank NV in London, said by phone. “We needed some sort of action to reduce the pressure on money markets and an increase in liquidity to bridge over this confidence gap.”

Bovespa (IBOV), Real

The emerging markets index earlier dropped as much as 0.6 percent after Standard & Poor’s cut the credit ratings of some of the world’s biggest banks including Goldman Sachs Group Inc., Bank of America Corp. and UBS AG on revised ranking criteria.

The Bovespa climbed to 56,874.98 in Sao Paulo and JBS SA, the world’s largest beef producer, surged as a strengthening real cut the company’s debt cost in local-currency terms. JBS shares gained as much as 9.9 percent.

Brazil’s real jumped 2 percent to 1.8085 per dollar.

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, added 3 percent to 22.05 reais as crude oil prices in New York jumped to a two-week high and the Rio de Janeiro-based company said it had found “good-quality” oil in the Santos Basin off Brazil’s coast. Consumer-goods maker Hypermarcas SA rose 2.5 percent to 8.15 reais.

Cemex, Mechel (MTLR)

Oil for January delivery gained as much as 2 percent to $101.75 a barrel as the coordinated central bank action and a report showing U.S. companies added more workers than projected bolstered prospects for global energy demand.

Cemex SAB (CEMEXCPO), the largest cement maker in the Americas, climbed for a third day on the IPC in Mexico City and gained 6.9 percent to 6.34 pesos. OAO Mechel, Russia’s largest coal producer for steelmakers, was the biggest gainer on the Micex, rising 10 percent to 328.10 rubles.

The Standard & Poor’s GSCI Index of 24 raw materials climbed as much as 1.7 percent to a two-week high, led by gains in industrial and precious metals.

PKO Bank Polski SA (PKO), Poland’s largest bank, rose 5.8 percent to 33.42 zloty in Warsaw after the Central Statistics Office said the nation’s economy expanded 4.2 percent in the three months to Sept. 30 from a year earlier, compared with the 4 percent median estimate of 30 economists surveyed by Bloomberg.

Mexican Peso, Ruble

The Mexican peso strengthened for a third day, adding 1.5 percent to 13.6252 per dollar, while Russia’s ruble climbed 1.8 percent to 30.7350. South Africa’s rand jumped 2.9 percent to 8.1089 per dollar.

Haci Omer Sabanci Holding AS (SAHOL), Turkey’s second-biggest group of companies, rose for a fourth day in Istanbul, gaining 4 percent to 5.76 lira. The nation’s ISE National 100 Index (XU100) surged 4.7 percent to 54,517.76.

The BSE India Sensitive Index, or Sensex (SENSEX), rose 0.7 percent to 16,123.46, paring its monthly loss to 8.9 percent. India’s economy expanded 6.9 percent in the third quarter, a government report released today showed, the slowest pace in more than two years.

China’s Shanghai Composite Index (SHCOMP) tumbled 3.3 percent to 2,333.414 before the cut to bank reserve requirements, the biggest one-day drop in almost four months, after central bank adviser Xia Bin said China’s monetary policy “fine-tuning” doesn’t mean credit controls will be loosened and that people shouldn’t expect a reversal of curbs to the property market.

China Citic Bank Corp. (601998) dropped 3.6 percent to 4.04 yuan in Shanghai and Poly Real Estate Group Co. slipped 1.1 percent to 9.21 yuan.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell 18 basis points, or 0.18 percentage point, to 413 basis points, according to JPMorgan Chase & Co. (JPM)’s EMBI Global Index.

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Jason Webb in London at jwebb25@bloomberg.net

To contact the editors responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net

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