* Stocks arrest slide as authorities tackle spread of virus
* WHO meets Wednesday to consider severity of outbreak
* Italian bonds hit by talk of 5-Star leader resignation
* Dollar looking ready to test December highs
* Oil dips after Libyan supply jitters
* World FX rates in 2020 http://tmsnrt.rs/2egbfVh
* Asian stock markets: https://tmsnrt.rs/2zpUAr4
By Marc Jones
LONDON, Jan 22 (Reuters) - World stock markets regained
strength on Wednesday, as swift updates from China about the
spread of a new flu-like coronavirus raised hopes the outbreak
would be contained.
Worries about contagion of the virus, particularly as
millions travel for upcoming Lunar New Year festivities, have
knocked the world's top equity markets off record peaks.
The outbreak has revived memories of the Severe Acute
Respiratory Syndrome (SARS) epidemic in 2002-03, a coronavirus
outbreak that killed nearly 800 people.
This time, China's response and candour -- in contrast to
the SARS spread -- have helped reassure traders concerned about
the possible global fallout.
China's National Health Commission said on Wednesday there
were 440 cases of the new virus, with nine deaths so far, and
though Hong Kong confirmed its first case measures
are now in place to minimise public gatherings in the
most-affected regions. Europe cheered a fresh record high for Germany's DAX
.GDAXI but things had started flag by early afternoon.
A stronger pound dragged down London's exporter-dominated
FTSE .FTSE , talk of U.S. tariffs on European goods was doing
the rounds again and political stress struck in Italy once more,
causing a near 2% drop in bank shares. .EU
According to party source, the leader of Italy's
co-governing 5-Star movement, Luigi Di Maio had resigned.
Italian government bonds saw their biggest sell-off in a
month with yields -- a proxy of the country's borrowing costs --
rising as much as 8 basis points as investors wondered whether
it could ultimately collapse the country's fragile
coalition. GVD/EUR
"The initial reaction was to sell because of the heightened
political uncertainty," said Luca Cazzulani, a strategist at
UniCredit in Milan. "But there is no outright link between de
Maio's resignation and a collapse of the government."
Despite Europe's spluttering noises, S&P 500, Dow Jones and
Nasdaq futures ESc1 were still up 0.2%-0.6% and pointing to
another record open for Wall Street.
IBM IBM.N was expected to lead the charge after
better-than-expected full-year profits, while streaming giant
Netflix NFLX.O also reported strong international growth,
though it did warn the next few months would be tougher. .N
Overnight, the coronavirus developments had seen Shanghai
stocks .SSEC recover from an early 1.4% drop to end higher.
Japan's Nikkei .N225 , South Korea's Kospi index .KS11 and
Hong Kong's Hang Seng .HSI had all risen by more than half a
percentage point and Australia's S&P/ASX 200 .AXJO hit a
record high.
SARS FLASHBACK
With markets generally rising, safe plays such as gold and
the Japanese yen were weaker. The dollar .DXY was shuffling
towards the highs it reached in December against the other top
world currencies. /FRX
The coronavirus outbreak has spread from its origin in
Wuhan, China, to the United States, Thailand, South Korea, Japan
and Taiwan. The World Health Organization meets later on
Wednesday to consider whether the outbreak is an international
emergency.
Only five such emergencies have been declared in the past
decade: the H1 virus that caused an influenza pandemic in 2009,
West Africa's Ebola outbreak 2013-2016, polio 2014, Zika virus
in 2016, and the current Ebola outbreak in the Democratic
Republic of Congo.
"The call here is not that the virus is done or nipped in
the bud by any means," said Kay Van-Petersen, global macro
strategist at Saxo Capital Markets. "But there have been no big
further reported outbreaks, and the response from the Chinese
authorities has been very, very positive". Airlines, other travel-exposed stocks and retailers
vulnerable to shifts in consumer sentiment have borne the brunt
of selling in the past two days, along with the Chinese yuan.
MSCI's airline industry index .dMIWO0AL00P posted its
biggest daily drop in more than three months on Tuesday. Airline
shares were still falling on Wednesday.
"While details on the coronavirus are scant, we reckon that
the SARS period could offer some clues as to how markets could
pan out," analysts at Singapore's DBS Bank said. "The trends are
clear: Yields and stock prices fell in the first few months of
the SARS outbreak and rebounded thereafter."
So far, the yield on U.S. 10-year government bonds has
stabilised after Tuesday's drop, sitting at 1.78% US10YT=RR in
European trading. US/
Spot gold XAU= gave back some gains to trade at $1,555 per
ounce and the yuan eased in the onshore market CNY=CFXS to
6.8997 per dollar.
Oil prices also settled back as traders figured a
well-supplied global market would be able to absorb disruptions
that have cut Libya's crude production. O/R
Brent crude LCOc1 was down 0.9% at $64.01 a barrel and
U.S. crude CLc1 fell 1% to $57.77 a barrel.