Stockmarkets keep rising despite stress of US bank shortfalls

It appears that the results of the US's stress tests have reassured traders, even though Bank of America has been told to find $33.9bn.

Stockmarkets around the world kept rising today, shrugging off the news last night that 10 US banks need to raise $75bn (£50bn) of capital to survive the financial crisis.

The FTSE 100 gained 1.66% in early trading, up 73 points at 4471, with bank shares leading the rally despite Royal Bank of Scotland posting a first-quarter loss. Markets in France and Germany also rallied by over 1%. The FTSE 100 has already gained 6.6% this week, amid speculation that shares may be poised for another bull market.

With Japan's Nikkei index hitting a six-month high overnight, there was some surprise in London this morning that the headline figure of $75bn had not hit market sentiment.

"These markets can't keep going up in a straight line," warned David Buik of Cantor Index. "I'm just amazed that the markets think that such gargantuan figures can be shrugged off".

But it appears that the results of the US's stress tests have reassured traders, even though Bank of America has been told to find $33.9bn.

Anthony Conroy, head trader at BNY ConvergEx, said last night that the market welcomed greater visibility: "A lot of people had some pretty desperate numbers plugged into their models and this sense of clarity is helping," Conroy said.

Government economists assessed how America's 19 largest banks would cope if the economy stumbles into a further series of financial shocks as consumers default on credit cards payments and mortgages, and concluded that they risk racking up aggregate losses of $600bn in 2009 and 2010.

Several of the banks concerned have already said how they intend to bolster their balance sheets. Citigroup will generate the $5.5bn it needs by expanding an existing swap of preference stock for common stock, Morgan Stanley launched a public offering of $2bn and Wells Fargo began an underwritten $6bn offering of shares.

Federal Reserve chairman Ben Bernanke told Congress yesterday that the stress tests were a "good start" toward regulation of broad-based risks to the US financial system.

The tests were originally conceived as a way of providing reassurance over the state of the US banking sector, but led to criticism of the Obama administration and speculation that some banks might not survive the exercise.

Although many of the other banks are looking for much smaller sums than Bank of America, experts question how achievable that will be in the current economic conditions.

Treasury secretary Timothy Geithner said he was "reasonably confident" that the banks concerned could raise the necessary capital on the financial markets, adding that the government was willing to provide aid if necessary.

In trading in London RBS shares gained nearly 14% to 47.3p despite reporting a post-tax loss of £857m. Lloyds Banking Group gained 6% to 102.85p.