Reuters - World stocks end up after historic annual losses

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World stocks end up after historic annual losses

Wednesday, Dec 31, 2008 10:30PM UTC

By Clive McKeef

NEW YORK (Reuters) - World stock markets ended on an uptick for the year on Wednesday, after some bourses registered their worst annual losses in history.

Global stocks as measured by the MSCI world index <.MIWD00000PUS> ended up 0.76 percent for the day and posted their first monthly gain in seven months, but lost 43.36 percent for the year.

About $14 trillion in market capitalization was erased from world stock markets in 2008 in the wake of the worst credit crisis since the Great Depression of the 1930s.

"It has been a shocking year, hardly anything was spared in the carnage," said Michael Heffernan, strategist at Austock Group in Australia.

U.S. stocks edged up on Wednesday and saw their first monthly gain in five months, but the year has been the worst for Wall Street stocks since the Great Depression.

Continuing weekly U.S. jobless claims remained at their highest level since 1982 in Labor Department data on Wednesday, but investors took some heart from confirmation by the Federal Reserve on Tuesday that it would try to lower home mortgage rates further by buying mortgage bonds in 2009.

Interest rates on U.S. 30-year fixed-rate mortgages dropped for a ninth consecutive week, reaching their lowest level in 37 years, with the 30-year fixed rate at 5.10 percent, according to home funding company Freddie Mac on Wednesday.

The worst global credit crisis since the 1930s began with the bursting of the U.S. house price bubble in 2007, which resulted in more than $500 billion of losses on mortgage-related securities for U.S. banks alone.

The U.S. Treasury and the Fed have been trying to stabilize the housing market by recapitalizing banks and lowering mortgage rates, while President-elect Barack Obama has proposed a huge fiscal stimulus package of more than $500 billion in 2009.

"There is general optimism that the new administration will come forth with some policies that are going to help," said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois.

The Dow Jones industrial average <.DJI> ended up 108.00 points or 1.25 percent, at 8,776.39. The Standard & Poor's 500 Index <.SPX> finished up 12.61 points, or 1.42 percent, at 903.25. The Nasdaq Composite Index <.IXIC> closed up 26.33 points, or 1.70 percent, at 1,577.03.

The benchmark S&P 500 index has recovered about 18 percent since hitting an 11-year low on November 20, but for the year saw its biggest annual fall since 1937: 38.49 percent.

European shares closed higher in holiday-thinned trade on Wednesday, with the FTSEurofirst 300 <.FTEU3> index of top European shares up 0.9 percent at 831.97 points -- while slumping 45 percent in 2008.

The DJ Stoxx basic resources index <.SXPP>, home of Europe's biggest mining companies, was the worst hit in 2008, sinking 64.9 percent, closely followed by the DJ Stoxx banking index <.SX7P>, down 64.8 percent.

In Japan the Nikkei stock average fell 42 percent in 2008, the worst loss in its 58-year history, though the benchmark index gained 1.3 percent on its final half-day of trade.

"Everyone's pinning their hopes on economic stimulus policies by the United States and possibly China, which is keeping the market supported for now," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.

BOND YIELDS AT LOWEST IN DECADES

U.S. Treasuries prices slid on Wednesday as the stock market continued to edge higher, removing some of the need for a safe haven, despite the poor economic outlook.

Benchmark 10-year notes fell 1-19/32, with their yield rising to 2.22 percent from 2.06 percent on Tuesday.

However, three-month U.S. Treasury bills continue to yield close to zero percent and longer-dated U.S. Treasury yields remain at 50-year lows, after the global credit crisis drove investors out of stocks and sparked a massive flight to the safety of government bonds worldwide.

European bond markets were already closed for the year on Wednesday after two-year and 10-year euro zone government bond yields fell to their lowest levels in nearly two decades on Tuesday, the last trading day of the year, capping bumper annual returns due to the grim economic outlook.

U.S. DOLLAR BENEFITS

The U.S. dollar rose on Wednesday and was headed for its first yearly gain against the euro since 2005 as the financial crisis led investors to take refuge in the relative safety of the greenback.

The dollar was on track to end 2008 higher against most major currencies.

The Japanese yen was the other top performer this year, boosted by investors unwinding trades financed by borrowing the Japanese currency at low interest rates.

Despite its rally against higher-yielding currencies such as sterling and the Australian and New Zealand dollars, the U.S. dollar has tumbled more than 18 percent against the yen this year, while the euro was 22 percent lower against the yen.

The U.S. dollar closed steady around 90.63 yen on Wednesday with the euro down around $1.3967.

"In forex, the year could be summed up in two words: risk aversion," said Dustin Reid, director for FX strategy at RBS Global Banking & Markets in Chicago. "And the yen and the dollar were at the receiving end of that global flight to safety."

The U.S. dollar index <.DXY> was up 0.7 percent at the close in New York, after a 6.0 percent drop for the month, but ended up about 5.8 percent for the year.

COMMODITIES STEADY AFTER CRASH

U.S. crude oil futures rose sharply on Wednesday with the expiry of January heating oil and gasoline futures contracts, and with no end to the attacks in Gaza raising the possibility of geopolitical risk over the holiday.

NYMEX February crude oil futures ended up $5.57 at $44.60 a barrel, but crude oil prices have crashed 77 percent in the past five months, going from a record high of $147.27 in July to a low of $32.40 on December 19.

Overall, commodities from oil to copper closed out their worst year ever on a flat note on Wednesday.

"In the new year, President-elect Obama will be taking on his new position, and many people will be expecting a number of changes to stimulate the U.S. economy," said Adrian Koh, analyst at Phillip Futures in Singapore.

(Additional reporting by Jeremy Gaunt and Brian Gorman; Editing by Jonathan Oatis)