World stocks rally on Goldman Sachs earnings

LONDON: World stock markets rallied yesterday, with banks boosted by Goldman Sachs' stronger-than-expected profit.

Equities won ground after Goldman launched plans to repay its US government rescue aid of US$10 billion (RM36 billion) with a US$5 billion share issue plus cash from additional resources.

The news was applauded by investors who have been on tenterhooks awaiting the latest results from banking firms reeling from the ongoing global financial and economic crisis that erupted in 2007.

In European markets' early trading on Tuesday, Frankfurt fizzed 1.21 per cent higher, London surged 1.26 per cent and Paris soared 1.42 per cent.

In Asia, Hong Kong share prices leapt 4.55 per cent, driven also by gains in banking giant HSBC and Chinese stocks, dealers said.

On the downside, however, Tokyo finished 0.92 per cent lower, depressed by overnight losses on Wall Street ahead of a raft of corporate earnings results.

"The early release of the Goldman Sachs numbers will give the financial sector further impetus," said analyst Chris Hossain at ODL Securities.

"The financials were the main reason behind the last twelve months of pain, so it is only right that investors look to these heavyweights to lead us back up."

On Monday, Goldman posted a first-quarter net profit of US$1.81 billion.

Goldman added that it hoped the new capital raised would allow it to repay all of the public money injected through the Treasury's Troubled Asset Relief Programme.

The global financial crisis has ravaged the banking sector due to huge losses on complex investments in toxic or high-risk debts.

Among other banks to report earnings this week are JPMorgan Chase and Citigroup. Another leading US bank, Wells Fargo, had projected better-than-expected results last week.

Economist Lee Hardman, at The Bank of Tokyo Mitsubishi UFJ, cautioned that the banking sector would only recover if the crucial issue of toxic assets was resolved.

"Ultimately a sustainable recovery in the financial sector will depend upon finding an effective solution for bad assets held on banks' balance sheets which are impairing the flow of credit to the economy," Hardman said. - AFP