Stocks upbeat on bailout hopes

By Natsuko Waki

LONDON (Reuters) - World stocks began the final quarter of 2008 on an upbeat note on Wednesday as hopes grew that U.S. lawmakers could reach agreement to revive a $700 billion (393 billion pound) bailout, but money markets remained stressed.

The U.S. Senate will vote later on a new version of the bailout package to tackle the worst financial crisis since Great Depression after the House of Representatives shocked markets with a rejection earlier in the week.

Hopes for a breakthrough, along with Tuesday's moves by Ireland to pledge up to 400 billion euros to guarantee bank deposits and the bailout of another European bank, Dexia (DEXI.BR), helped stabilise investor morale, pushing stocks higher across the board.

However, other markets remained deeply stressed, especially in money markets where the beginning of a new financial quarter failed to relieve strains despite recent actions by central banks to pump billions of dollars.

"The market is all about confidence and investors need to just hang in there and not be swayed by different rumours. The worrying sign is that it is based on no more than a hopeful optimism without much basis to it at the moment," said Justin Urquhart Stewart, director at Seven Investment Management.

"This is the eye of the storm until we wait for the decision from the U.S. Senate and see how the restructuring takes place."

The FTSEurofirst 300 index .FTEU3 rose 0.7 percent while MSCI main world equity index .MIWD00000PUS rose two thirds of a percent, having hit a 2-1/2 year low on Tuesday.

The index fell 17 percent in the previous three months, its worst quarterly performance since the final quarter of 2002.