London - World equity markets rebounded on Friday as investors snapped up stocks at bargain prices and set aside news that the eurozone had officially entered recession, analysts said.
News that recession is sweeping across the world's advanced economies raised the stakes ahead of financial crisis talks among leaders of the Group of 20 major rich and developing countries in Washington on Saturday.
The economy of the 15 nations sharing the euro sank into recession for the first time ever, EU data revealed on Friday, with gross domestic product (GDP) shrinking by 0.2% in the second and third quarters.
Italy also fell into recession in the third quarter, with the economy contracting 0.5% from the second quarter when it shrank 0.3%.
The gloomy news comes one day after official figures showed Germany's economy - Europe's biggest - slumped into recession for the first time in five years.
Dealers said a eurozone recession increased the chances of more interest rate cuts from the European Central Bank (ECB) - which traditionally boosts investor sentiment.
"The latest eurozone GDP data confirm that the economy ... entered its first technical recession since the formation of the euro," said Ben May, European economist at the Capital Economics consultancy in London.
"Coupled with the prospect of further sharp falls in inflation, this will prompt the ECB to cut interest rates aggressively over the coming months."
All eyes on G20 summit
European stocks accelerated gains in late morning trade, with Frankfurt adding 2.64%, Paris up 1.99% and London 3.17%.
In Asia, Hong Kong closed 2.43% higher and Tokyo rallied 2.72% as bargain-hunters took advantage of recent tumbles, analysts said.
"The rally is just driven by bargain hunting after the sharp dips," said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC in Tokyo.
NAB Capital strategist John Kyriakopoulos said all eyes will be on the key G20 summit.
"The G20 will need to deliver some good news or we'll see a sharp drop in stocks on Monday," said Kyriakopoulos.
Dealers took their cue on Friday from a powerful rally overnight on Wall Street where the Dow Jones Industrial Average leapt 6.67% as investors also scooped up beaten-down stocks after a punishing three-day market selloff.
"A significant turnaround on Wall Street in the latter part of (Thursday's) session is set to lift spirits in Europe as we head towards the weekend break," said CMC Markers dealer Matt Buckland in London on Friday.
In New York on Thursday, US stocks staged a powerful rebound in volatile trade as traders shook off grim economic news and were buoyed by a successful test of market lows hit last month.
Elsewhere in Asia, Singapore stocks closed flat and Sydney rose 1.4%.
The rebound came despite data showing a steep drop in both imports and exports in the United States, highlighting the slowdown in the world's biggest economy and a likely global recession, dealers said.
"Expectations for the G20 summit in Washington this weekend have been scaled back," said Barclays Capital analyst David Woo.
"The most likely outcome seems to be a general discussion of the causes of the financial market crisis and global economic downturn, and the agreement to continue discussing reform and policy.
"The downside is that there will likely be significant disagreement on the causes of the crisis and the long-term reforms needed to prevent a recurrence."
Japanese Prime Minister Taro Aso will tell the summit his country is ready to lend up to $100bn to the International Monetary Fund to boost assistance for emerging countries hit hard by the financial crisis.
The Organisation for Economic Cooperation and Development (OECD) forecast on Thursday that the United States would suffer a severe 2.8% contraction in the fourth quarter of this year and shrink 0.9% in 2009.
"The OECD as a whole is currently in recession and will likely stay there for some time," OECD economist Joergen Elmeskov said.
- AFP