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AFP: World stocks surge but French bank fraud casts pall

7 hours ago

LONDON (AFP) — Global share prices rocketed Thursday, though fears of an economic slowdown lingered and markets were nervous as Societe Generale revealed a massive 7.15-billion-dollar fraud-related loss.

Europe's leading share indices surged in morning deals, with gains of between 4.0 and more than 5.0 percent after a recovery on the Japanese market and an overnight rebound on Wall Street raised hopes a recent sharp slump on global markets was over.

But Hong Kong share prices reversed course and closed sharply lower Thursday as its finish coincided with news of a huge fraud and subprime-related losses at Societe Generale, dealers said.

The French banking giant said that adding its fraud loss of 4.9 billion euros to the effect of its exposure to the US subprime mortgage crisis its total losses came to almost 7.0 billion euros in 2007.

"Volatility shows no sign of abating," said Matt Buckland of CMC Markets in London.

In late morning trade, London's FTSE 100 index of leading shares was up 4.39 percent at 5,855.40 points and Frankfurt's DAX 30 had surged 5.70 percent to reach 6,806.38. In Paris the CAC 40 jumped 4.87 percent to 4,862.63 points.

Tokyo's benchmark Nikkei-225 index rose 2.06 percent to above 13,000 points, two days after it had slid under the key level for the first time in 28 months.

"Although it's too early to assess whether the troubles are over, the calming of US markets has positively affected Asian markets," said Shinichi Ichikawa, strategist at Credit Suisse First Boston.

"The news from SocGen (Societe Generale) about the brokerage fraud and subprime losses again turned sentiment negative," said YK Chan, strategist with Philip Capital Management.

"Investors are still very nervous and any bad news from the US or Europe is enough reason for them to sell," he said.

Trading in shares of Societe Generale was suspended Thursday after the group said a sole rogue trader had been responsible for racking up the fraudulent losses. The bank later opened 3.64 percent in negative territory.

French Prime Minister Francois Fillon described the losses at Societe Generale as "serious" but separate from recent turmoil on equity markets.

"It is a serious business but at the same time, it has nothing to do with the current situation on the global financial markets," Fillon said on the sidelines of the Davos gathering of the world's business and political leaders.

"I note at the same time, that despite this fraud, Societe Generale has a positive report (for 2007). I see that it has taken serious measures to cope with the situation," he said.

World stock markets saw another tumultuous day Wednesday, as Wall Street roared back in a powerful late-day rally. European shares plunged following signals from the European Central Bank that eurozone interest rates were not about to come down.

But on Thursday Europe's main stock markets enjoyed a turnaround as the value of banking shares increased sharply. Banks have been among the worst hit companies as a result of a squeeze on global credit caused by the US home-loan crisis.

With global markets in turmoil on concern that fallout from the US housing market meltdown will force the world's biggest economy into recession and possibly lead to a global economic slowdown, the US Federal Reserve on Tuesday slashed American borrowing costs.

The US central bank unexpectedly cut its base rate by 0.75 percentage points, the biggest decrease since the Fed began using the federal funds rate as its main policy tool in the 1990s.

On Wall Street, the Dow Jones Industrial Average closed up 2.5 percent on Wednesday, surging back from opening losses of over 300 points.

The tech-heavy Nasdaq gained 1.05 percent and the broad-market Standard & Poor's 500 index rose 2.14 percent.

"Mood swings are very extreme," said Andrew Clarke, a sales trader at SG Securities in Hong Kong. "Most investors are still nervous about the US economy. They are still divided on where the US stock market is going."