Global stocks rise on China hopes

By Herbert Lash

NEW YORK (Reuters) - World stocks bounced back from multiyear lows on Wednesday, buoyed by signs of economic recovery in China and plans by its government to increase fiscal spending, news that helped lift oil and metals prices.

U.S. crude oil futures jumped more than 7 percent, extending gains to top $45 a barrel after inventory of crude in the United States declined unexpectedly and demand for gasoline rose.

Euro zone and U.S. government debt prices mostly fell as the rebound in equities undermined investors' appetite for less risky fixed-income assets.

But the cost of borrowing dollars over three months nudged higher as ongoing worries over the financial sector, where counterparty risks have risen, kept banks wary about lending to each other.

A key gauge of Chinese manufacturing rose in February for the third straight month, hitting a five-month high and lifting investor optimism on hopes the data signaled that China, a major driver of global growth, may be on the brink of economic recovery. China also said it will boost spending on infrastructure and manufacturing under a second stimulus package.

The Shanghai Composite Index .SSEC, the main Chinese stock index, surged 6.1 percent in its biggest gain since November.

European shares rallied, breaking three straight sessions of losses, and U.S. stocks snapped a five-day sell-off. Higher prices for oil and other commodities -- driven by China hopes -- spurred energy and natural resource stocks.

"The market is encouraged by the news from China," said Joe Arsenio, president of Arsenio Capital Management in Larkspur, California. "They believe (China) will gain traction in the second quarter."