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Nikkei climbs as Takaichi nearer to PM job

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U.S. big tech results top of mind

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Wall St futures, Treasuries hang on to Fed rate cut hopes

(Updates prices and commentary)

By Naomi Rovnick and Wayne Cole

LONDON/SYDNEY, Oct 20 (Reuters) - World stocks held

strong on Monday as traders bet on U.S. rate cuts and Japanese

stimulus spending, balancing jitters about U.S. regional banks

with hopes for a quarterly earnings boom for Wall Street's

dominant artificial intelligence titans.

Trading in Wall Street stock futures implied the blue

chip S&P 500 share index and tech-heavy Nasdaq 100 would

open about 0.3% higher as anticipated market volatility stayed

relatively high.

The VIX measure of expected choppiness on the S&P 500

hit its highest level last week since U.S. President Donald

Trump unleashed threats of punitive trade tariffs on April 2. On

Monday it stuck at 21, still above its long-run average.

"Risks are just piling up everywhere," Fidelity

International multi-asset manager Caroline Shaw said.

"There's... a lot of volatility behind that."

A rotation into international stocks was also evident on

Monday, with European equities 0.6% higher and Japan's

Nikkei jumping 2.8% to a record as a coalition deal set

the stage for pro-stimulus Sanae Takaichi to become prime

minister.

AI DRIVES WALL STREET AS CREDIT DOUBTS RISE

Safe-haven gold rose 0.3% on Monday to $4,263 an ounce

after jumping 6% last week in response to broadening doubts

about the U.S. credit sector and stress signals flaring across

the nation's regional banks.

JPMorgan CEO Jamie Dimon warned last week that more

"cockroaches" would turn up in credit markets after two

automotive sector bankruptcies in September.

Such trends were making it even more crucial that AI titans

like Nvidia and Microsoft do not signal any slowdown in

their own capital expenditure or business investment plans for

the new tech in upcoming earnings, investors said.

"If the U.S. market starts coming down because the AI theme

runs out of steam, everything's coming down. You just don't want

to be in equities at that point," Janus Henderson multi-asset

manager Oliver Blackbourn said

U.S. households' stock market exposure has reached a 75-year

high as a proportion of overall wealth, with optimism about tech

earnings driving retail investor participation while performance

between AI and the rest of the market diverges.

The proportion of S&P 500 stocks that are on a downtrend has

almost doubled to 44% since July.

As investors stay nervous about U.S. regional banks'

earnings that are about to roll in, some said tighter credit

conditions could remove some froth from AI share prices even if

data centre and advanced chip spending kept booming.

"I wouldn't say it's early innings for big tech but I think

there's still enough scope for healthy returns," said Jason da

Silva, Arbuthnot Latham global investment strategy director, who

remained positive on U.S. equities.

According to LSEG IBES data, analysts have forecast 8.8%

year-on-year growth for S&P 500 companies overall for this

quarter.

Earnings reports in upcoming days that could also influence

sentiment include those from Tesla and Netflix ( NFLX )

, while consumer groups Procter & Gamble ( PG ) and

Coca-Cola might provide a snapshot of how the U.S. economy is

doing.

RATE CUT BETS IN JOBS DATA VACUUM

Traders are placing unanimous bets that the Federal Reserve

will cut rates by a quarter-point next month and again in

December, with its funds rate dropping to 3% next year as

central bank chair Jay Powell has not pushed back against this

optimism.

But the Fed will also go into its next policy meeting

without full visibility on how the U.S. economy is faring

because a White House shutdown since October 1 has suspended the

release of employment data that it watches closely.

Core inflation data due on Friday are also expected to show

that price growth held at 3.1% in September, sticking stubbornly

above the Fed's average 2% target.

The 10-year Treasury yield, which sets the tone

for global corporate and household debt costs, has fallen more

than 50 basis points since June and was last at about 4.01%.

The Fed cut theme has also helped to further depress the

U.S. dollar against European and higher-yielding currencies,

with the euro edging up to $1.1662 on Monday after

withstanding pressure from last week's surprise credit downgrade

of France by ratings agency Standard & Poor's.

The greenback at least held its own against the Japanese yen

on Monday, as currency markets reduced the odds of a

Bank of Japan rate hike this month to just over 20% and viewed

the central bank as likely to support government stimulus

efforts over battling inflation.

In commodities, oil was pressured by OPEC+ supply plans and

international benchmark Brent crude eased 0.8% to $60.8

a barrel.