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.
MSCI’s all-country world stock index .MIWD00000PUS was up half a percent, off its session highs, with emerging market shares .MSCIEF climbing 2.2 percent.
The pan-European FTSEurofirst 300 .FTEU3 gained 0.2 percent. Earlier, Japan’s Nikkei .N225 added 1.9 percent.
The euro was volatile, at one point hitting a six-week high of $1.3955 versus the dollar, but later slipping.
It was at around $1.3840. This compares with a nine-month low plumbed earlier this month at $1.3145 and traders said it was likely to keep its positive tone at least until the next summit.
The strong Japanese yen, meanwhile, is causing some concern for Japanese officials.
Finance Minister Jun Azumi said on Monday that Japan will take decisive action on excessive and speculative forex moves. He said that the dollar below 76 yen did not reflect economic fundamentals.
Core German government bond prices rose, with investors concerned about a lack of agreement on Greek debt writedowns.
Private sector participants seemed to be willing to take a 40 percent loss on their Greek debt holdings, while euro zone leaders wanted a 50 to 60 percent loss.
At the same time analysts broadly view the 40 percent figure that the private sector is proposing as insufficient to bring Greece’s debt levels back toward sustainable levels.
“They are just patching up (the Greek debt problems) but the underlying problems are huge,” one trader said.
Additional reporting by Marius Zaharia and Emelia Sithole-Matarise; Editing by Stephen Nisbet