By Adria Cimino Oct. 13 (Bloomberg) -- Stocks rallied worldwide, with the MSCI World Index rebounding from its worst week on record, and the euro rose the most in three weeks against the dollar after governments in Europe, the U.S. and Asia agreed to support banks. UBS AG, Deutsche Bank AG and ING Groep NV jumped more than 10 percent after European leaders said they would guarantee new bank debt. Morgan Stanley surged 27 percent after changing terms of its $9 billion investment from Mitsubishi UFJ Financial Group Inc. Oil climbed from a 13-month low on speculation the bailout may avert a collapse of the financial system that threatens economic growth. ``They brought out the heavy artillery,'' said Aurore Wannesson-Raynaud, a strategist at Axa Investment Managers in Paris, which oversees about $830 billion. ``It's possible that the worst is behind us. We should see better days ahead.'' The MSCI World Index added 2.4 percent to 931.68 at 1:20 p.m. in London. The index tumbled 20 percent last week and is still down 41 percent this year. Futures on the Standard & Poor's 500 Index rose 4.5 percent. Europe's Dow Jones Stoxx 600 Index advanced 5.4 percent, while the MSCI Asia Pacific excluding Japan Index gained 7.4 percent. Stocks increased after the U.S. Federal Reserve said central banks will offer financial institutions unlimited dollar funds and Europe pledged to guarantee bank debt issues and permit governments to buy stakes and recapitalize some distressed financial companies. ``The most important signal that the European Union gave to us over the weekend is that it's finally speaking with one voice,'' said Michael Scholz, an equity strategist at WestLB AG in Dusseldorf. ``That's a positive signal for the market participants.'' National Markets National benchmark indexes climbed more than 4 percent in 15 of the 17 western European markets that were open. The U.K.'s FTSE 100 jumped 3.6 percent as BHP Billiton Ltd. and Royal Dutch Shell Plc rose. Germany's DAX advanced 6.8 percent. France's CAC 40 increased 5.5 percent as Total SA gained. Iceland suspended stock trading for a third day after the government seized Kaupthing Bank hf, the country's biggest bank. The cost of protecting bank bonds from default fell after the U.K. pledged 37 billion pounds ($64 billion) for Royal Bank of Scotland Group Plc, HBOS Plc, and Lloyds TSB Group Plc. Germany will provide as much as 500 billion euros ($681 billion) in loan guarantees and capital to bolster the banking system, the Finance Ministry said. ``There's a certain sense of relief,'' said Benoit de Broissia, an equity analyst at KBL Richelieu Gestion in Paris, which oversees $5.5 billion. ``The banking system is the lung of the economy, so it has to be supported.'' The euro rose 1.9 percent, the most since Sept. 22, to $1.3657. It advanced 1.7 percent to 137.21 yen. Money-Market Rates Fall Money-market rates declined after central banks offered unlimited dollar funds. The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.75 percent from 4.82 percent, the British Bankers' Association said today. The TED spread, the difference between what the U.S. government and banks pay for three-month dollars, narrowed 7 basis points to 457 basis points. The Libor-OIS spread, a gauge of cash scarcity among banks, narrowed 2 basis points to 362 basis points. Europe's Stoxx 600 has dropped 40 percent this year as concern that frozen credit markets will trigger a recession erased about $28 trillion in value from global stock markets. Financial firms have reported $635 billion in losses and writedowns from U.S. mortgage-related investments since the beginning of last year. U.S. equity futures gained today after the worst week for stocks in 75 years and Asian shares rebounded from the worst week since at least 1987. `Brink of Implosion' ``We were on the brink of an implosion,'' said Jacques- Antoine Bretteil, who manages about $312 million at International Capital Gestion in Paris. ``We've avoided the worst, but that doesn't mean all of the problems are over.'' UBS, the European bank hardest hit by subprime-related losses, surged 15 percent to 19.6 francs. Deutsche Bank, Germany's biggest, surged 12 percent to 34.82 euros. ING, the largest Dutch financial-services provider, gained 17 percent to 12.215 euros. Goldman Sachs Group Inc. raised its recommendation on European banks to ``neutral'' from ``underweight,'' citing the recent decline in valuations and central bank action to reduce risks for the industry. Barclays Plc added 8 percent to 224.75 pence. The U.K.'s second-biggest bank plans to sell more than 6.5 billion pounds ($11 billion) of shares to private investors without turning to the government for help. Barclays won't pay a final dividend for 2008, the company said today. Cede Control Royal Bank of Scotland fell 6.3 percent to 67.2 pence, and HBOS dropped 21 percent to 97.8 pence. Lloyds lost 5.7 percent to 178.6 pence. In exchange for the bailout, Royal Bank of Scotland and HBOS will cede majority control to the government, give Prime Minister Gordon Brown seats on their boards, the right to fix dividends, and power to set executives' pay. Societe Generale SA sank 6 percent to 47.025 euros. The bank that suffered a record trading loss this year declined on speculation the company may need to raise 10 billion euros ($13.6 billion) of capital. Speculation about a ``capital increase is what's hurting the stock,'' said Frederic Boissel, an equity trader at Tradition Financial Services in London. ``We heard a rumor of a loss in structured products and then a rumor of a 10 billion-euro capital increase, which would dilute shares by about 35 percent.'' Societe Generale denied rumors of a need for a capital increase and rumors of significant losses in structured products. Morgan Stanley Morgan Stanley surged 27 percent to $12.30. Mitsubishi UFJ will receive preferred stock that pays a 10 percent dividend instead of common stock. Japan's biggest lender will get 21 percent of the New York-based company as previously agreed. U.S. Treasury Secretary Henry Paulson said that pumping government funds into banks is a priority. The MSCI World Index closed last week valued at 11 times the earnings of its 1,730 companies. That was the cheapest since at least 1995, according to data compiled by Bloomberg. Europe's Stoxx 600 traded at 8.5 times profit, the lowest level since at least 2002. The S&P 500, the benchmark for American equities, was valued at 17.2 times earnings, the cheapest in more than a year, after its steepest weekly retreat since 1933. Banco Santander SA added 7.3 percent to 9.73 euros. Spain's largest lender is in talks to buy Sovereign Bancorp Inc., the largest remaining U.S. savings and loan, in what would be the third acquisition of a troubled lender in three months by the company. Sovereign Bancorp didn't trade in Europe. Commodities Rally BHP Billiton, the world's biggest mining company, jumped 6.1 percent to 1,013 pence, while Rio Tinto Group, the third- largest, climbed 7.9 percent to 2,616 pence. Copper on the London Metal Exchange rose from a 33-month low after governments around the world agreed to support their financial systems. Total SA, Europe's biggest oil refiner, gained 6.3 percent to 35.26 euros. Royal Dutch Shell, the region's largest energy company, advanced 5.4 percent to 1,373 pence. Crude for November delivery rose as much as 5.1 percent to $81.67 on the New York Mercantile Exchange. Royal Philips Electronics NV lost 6.8 percent to 14.70 euros. Europe's biggest television maker said it will slow down its 5 billion-euro ($6.8 billion) share buyback after third- quarter sales fell short of analysts' estimates. To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

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