Hope for euro deal, China growth lift world stocks

Mon Oct 24, 2011 7:14am EDT
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By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - World stocks gained on Monday as investors bet on a positive outcome to the euro zone crisis talks and took comfort from signs that China's economy may not be in as much danger as feared.

The euro was weaker, however, having reversed earlier gains, and there was demand for core long-term euro zone debt. Wall Street looked set to open flat to slightly lower.

Investors appeared to be giving euro zone leaders the benefit of the doubt in their attempts to reach a comprehensive agreement on fixing the euro zone debt crisis.

Some progress was made in Brussels over the weekend, with agreements near on bank recapitalization and on how to leverage the European Union's EFSF rescue fund to try to stop bond market contagion.

But final decisions were deferred until a second summit on Wednesday and sharp differences remain over the size of losses private holders of Greek government bonds will have to accept.

"We're still waiting for the comprehensive crisis plan and divisions remain, but it looks like we're getting close to the deal on EFSF leveraging and bank recapitalization," said a senior trader at a major Japanese bank.

Also of importance to investor sentiment was a rise in China's flash purchasing managers' index, suggesting that manufacturing in the world's second-largest economy expanded moderately in October after three months of contraction.

This will have eased fears that China's economy is heading for a hard landing, one of the major concerns for global investors along with the euro zone crisis and the slowdown in the United States.   Continued...

<p>A man walks past a stock quotation board outside a brokerage in Tokyo October 24, 2011. REUTERS/Toru Hanai</p>