Markets rebound on stimulus hopes

World stocks recorded their biggest rise in a month on Friday as share markets in Asia saw their best day in three months and European indices rose for a second consecutive day.

The pan-European FTSEurofirst 300 was up 2.5 percent in morning trade. recovering some lost ground after slumping 7 percent since the start of the year.

Oil stocks were the top sectoral gainers, up 4.4 percent, after a rally brought crude prices back above the key mark of $30 (27.6 euros) per barrel from a 12-year low of $26 on Wednesday.

The surge comes a day after ECB President Mario Draghi signaled the central bank would ease policy further at its next meeting in March to combat fading growth and disinflation.

Draghi reiterated his message at the World Economic Forum in Davos on Friday: "We have plenty of instruments and especially we have the determination and willingness and capacity of the Governing Council to act and deploy these instruments."

Asked in Davos about a financial market rout since the start of the year, he described it as "market vibrations, gyrations" and said it was premature to say that the global economic outlook had worsened as a consequence.

Central banks open taps

Investors seized on Draghi's comments and bet that the Bank of Japan (BoJ) might also ease policy further next week. Japan's benchmark Nikkei index soared nearly 6 percent following a report in the Nikkei business daily on Friday, saying the central bank was considering whether to add stimulus to counter the risks of slumping oil prices and a stronger yen.

This was grist to the mill for those expecting more action from the People's Bank of China (PBoC). The central bank has already been generous with liquidity, pumping a net 315 billion yuan ($48 billion, 44.2 billion euros) into the banking system ahead of the Lunar New Year holiday in early February.

It was the biggest weekly injection since January 2014 and analysts suspected it was larger than that warranted to avoid any hint of a cash crunch during the long holiday.

As a result, China's CSI300 index of the largest listed companies in Shanghai and Shenzhen closed up 1 percent. The indexes veered between positive and negative territory during the day, with little volume behind the trade. The Shanghai Composite did at least end the week marginally higher than it began, for the first time in 2016.

Skepticism remains

However, investors appear increasingly reluctant to risk their money on China's fickle markets, which have slumped about 17 percent so far this year.

City of London Markets trader Markus Huber projected the current level of central bank stimulus might not be enough to "push concerns about the Chinese economy out of the limelight."

"More action will be needed in order to bring much needed long-term calm and optimism back into the markets," he told the Reuters news agency.

And John Reid, strategist at Deutsche Bank in London, told the same news agency: "With inflation so low, it would be strange if central banks didn't do more in the face of such market turmoil and elevated risk factors."

He fears, however, the policy won't be "a major growth stimulant," but that the extra liquidity will further inflate asset prices.

uhe/pad (AFP, dpa, Reuters)