Emerging markets stocks rose for the first day in seven after the U.S. Federal Reserve pledged to keep interest rates at a record low for at least two more years.
The MSCI Emerging Markets Index rose 1.3 percent to 980.74 at 4:30 p.m. in New York, the biggest gain in four weeks, after earlier rising as much as 2.8 percent. Brazil’s Bovespa Index gained for a second day as oil companies followed crude higher. Chile’s Ipsa gauge climbed 2.5 percent. China’s Shanghai Composite Index climbed 0.9 percent while Taiwan’s Taiex Index jumped 3.3 percent and Indonesia’s Jakarta Composite Index advanced 3.4 percent.
The Federal Reserve pledged in a statement yesterday to keep interest rates at a record low at least through mid-2013 to revive a recovery that’s “considerably slower” than anticipated, adding that policy makers are prepared to use additional tools “as appropriate.”
“The market is going to focus on the fact that rates are going to stay low,” Erwin Sanft, head of China and Hong Kong research at BNP Paribas SA in Hong Kong, said in an interview on Bloomberg Television today. “That’s positive for performance.”
Eastern European shares fell, paring gains on the benchmark MSCI index, as bank stocks in the European Union tumbled on concern the European debt crisis is deepening. France’s market regulator, the Autorite des Marches Financiers, said it’s watching financial shares “in particular” after bank stocks in the European Union dropped to their lowest since March 2009.
“The market was convinced that the Fed policymakers will do something if they need to,” said Greg Lesko, who helps oversee $800 million at Deltec Asset Management in New York. At the same time, “people are nervous about the drop in European banks stocks. In the short term, anything can happen.”
Hungary’s BUX Index and Poland’s WIG20 both fell for the eighth day. Turkey’s benchmark sank 5 percent while Mexico’s stock gauge slid 0.6 percent. Russia’s Micex Index lost 4.4 percent to the lowest level since September 2010.
Europe’s 49-company Stoxx 600 Banks Index lost 6.7 percent, led by Societe Generale SA, France’s second-largest bank. The lender issued a denial of “all market rumors” after speculation that France’s creditworthiness was in doubt sent the shares down 15 percent, the most in more than 2 1/2 years.
Itau Unibanco Holding SA, Latin America’s biggest bank by market value, slid 3.3 percent. Banco Industrial & Comercial SA, the lender known as BicBanco, plunged to its lowest since June 2009 after posting second-quarter earnings that Bradesco Corretora said were “disappointing.”
It may take some time for people to “get comfortable,” said Deltec’s Lesko. “We are getting close to a point where emerging markets should do quite well. Valuations would support higher prices,” he said.
Brazilian airline Tam SA gained for a second day after it said greater-than-expected demand for air travel boosted second-quarter earnings. OGX Petroleo & Gas Participacoes SA and Petroleo Brasileiro SA climbed as oil rebounded from a 10-month low.
The real fell 2.2 percent against the dollar, the worst performer among Latin currencies after the Mexican peso, which fell 4.1 percent. The polish zloty weakened 4.8 percent, the biggest decliner among emerging-market currencies. Hungary’s forint sank 2.9 percent.
The extra yield on developing-nation debt over U.S. Treasuries rose one basis point, or 0.01 percentage point, to 3.77 percentage points, JPMorgan Chase & Co.’s EMBI Global Index showed.
Policy makers around the world are trying to shore up investor confidence after a rout in global equities this month wiped out more than $7 trillion of market value.
The People’s Bank of China will leave borrowing costs unchanged for the rest of this year, according to eight of 10 analysts surveyed by Bloomberg News yesterday. The yuan rose to a 17-year high against the dollar. The nation’s cabinet said “relevant nations” should adopt responsible fiscal and monetary policies to maintain confidence, in a statement yesterday after a meeting chaired by Premier Wen Jiabao.