GLOBAL STOCK markets rallied yesterday after Citigroup’s revelation that it had a strong start to the year ignited investor hopes that the first quarter would bring some solace to the battered financial sector

The S&P 500, which closed at a 12-year low on Monday, was up more than 4.5 per cent at midday in New York.

Earlier, stocks had gained 1.9 per cent in Shanghai, 4.9 per cent in London, 5.3 per cent in Frankfurt and 5.7 per cent in Paris.

HSBC’s Hong Kong-traded shares recovered 13.9 per cent yesterday, closing at HK$37.60. The rebound followed a 24 per cent fall for the bank on Monday, with about half the decline stemming from a massive last-minute trade placed by an unidentified party.

Bank stocks led yesterday’s global charge, boosted by the rare piece of good news from Citi, which has not reported a profit in five quarters and has been bailed out by the US government three times in four months. The last rescue, announced a fortnight ago, will turn the US government into Citi’s largest shareholder, with a stake of up to 36 per cent.

In a memo sent to its 300,000 global staff late on Monday night, Vikram Pandit, chief executive, said Citi had been profitable in January and February and was experiencing its best quarter in more than a year.

The Citi chief added that in January and February alone – two months in which investment banks did well because of a partial thawing of credit markets – the bank generated top line revenues of $19 billion (€15 billion) before markdowns. Mr Pandit also said his expense-cutting efforts – a key element of his strategy to return Citi to profitability – were ahead of schedule.

The prospect that Citi could report a profit in the first quarter sent its shares, which have lost 93 per cent of their value during the past 12 months, 38 cents higher to $1.43 at midday in New York – a rise of more than 36 per cent.

The cost of protection against a default on Citi’s debt fell, as fears that further government interventions could hit bondholders eased.

The financials stock index rallied 10 per cent, as investors read Citi’s statement as a sign that other banks had also done well in January and February.

With a large portion of Citi’s revenues in January and February believed to have come from an improvement in credit and equity markets, shares in Goldman Sachs and Morgan Stanley moved higher. Commercial banks such as Wells Fargo, Bank of America and JPMorgan Chase also rose as analysts said the low-interest rate environment would increase margins on their lending.

Market watchers said the rebound in stocks and financials had been expected after recent weakness. "This is an overdue bounce. We could see it coming and the market was in search of a catalyst," said Jim Paulsen, chief investment strategist at Wells Capital Management. – ( Financial Timesservice)