China move spurs equity as commodity gains

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - World stock and commodity markets surged on Monday in reaction to China's plan to spend nearly $600 billion (380 billion pounds) on stimulating its economy as G20 finance ministers pledged to do what is needed to revive financial markets.

Wall Street looked set for a solid start.

Oil leapt nearly 6 percent to more than $64.50 a barrel. Gold rose 2.5 percent to around $755 an ounce and London copper jumped 8.5 percent.

Demand for government bonds fell along with the rise in stocks, sending yields higher as investors found equities more attractively priced.

"The China stimulus package has had a stabilising effect near-term," said Ian Stannard, FX strategist at BNP Paribas.

"But in the longer term there remain concerns about the global economy and the fact that China is needing to take such drastic action."

China's official Xinhua news agency said on Sunday the world's fourth-largest economy had approved 4 trillion yuan (370 billion pounds) in new government spending between now and 2010, focussed largely on infrastructure and social projects.

That is close to 18 percent of China's Gross Domestic Product this year. Equity markets jumped on the prospect for reflated growth.