Bloomberg News

European Stocks Post Weekly Rally After Second Greek Bailout

July 22, 2011

July 23 (Bloomberg) -- European stocks climbed this week, snapping two weeks of losses, as euro-region leaders agreed on a second bailout package for Greece in a bid to end the region’s debt crisis.

Banks led gains in the Stoxx Europe 600 Index, with National Bank of Greece SA, Alpha Bank SA and Dexia SA all surging more than 18 percent. Renewable Energy Corp. jumped 33 percent, the most since 2008, after its biggest shareholder said the share price is too low for it to consider selling its stake. Electrolux AB, the world’s second-largest appliance maker, plunged 17 percent after earnings missed estimates.

The Stoxx 600 advanced 1.9 percent to 272.02 this past week. The gauge has still fallen 6.6 percent from year’s high in February amid speculation Europe’s fiscal crisis will derail the economic recovery and concern U.S. lawmakers will fail to agree on raising the nation’s debt ceiling.

The EU deal is “a step in the right direction,” said Veronika Pechlaner, an investment manager at Jersey, Chanel Islands-based Ashburton Ltd. “The increase in visibility on the form and magnitude of private-sector involvement is very important.”

National benchmark indexes rose in all 18 western European markets, except Iceland. France’s CAC 40 advanced 3.1 percent, the U.K.’s FTSE 100 gained 1.6 percent and Germany’s DAX gained 1.5 percent. Greece’s ASE rallied 9.3 percent for the biggest increase since October 2008.

Greek Aid

Euro-area leaders announced 159 billion euros ($228 billion) in new aid for Greece on July 21 and cajoled bondholders into footing part of the bill. Officials empowered their 440-billion euro rescue fund to buy the debt of stressed nations to help erect a firewall around Spain and Italy.

The Greek financing package will consist of 109 billion euros from the euro area and the International Monetary Fund. Financial institutions will contribute 50 billion euros after agreeing to bond exchanges and buybacks that will also cut Greece’s debt load.

In the U.S., lawmakers must agree on a plan to boost the government’s $14.3 trillion debt limit and avert a default by Aug. 2. House Speaker John Boehner said yesterday that he and the White House are “not close to an agreement” on raising the debt ceiling following a meeting with House Republicans in which the speaker was described as in a gloomy mood.

Debt Ceiling

“The market needs a resolution on the U.S. debt ceiling,” said Martin Dobson, head of trading at London-based Westhouse Securities. “I think the problem is that we’re through one crisis but not necessarily out of the woods. The European and U.S. crises will remain as a weight on the market for the foreseeable future.”

The Stoxx 600 started the week by falling to the lowest level since November after results from bank stress tests failed to allay concern that they have sufficient capital to withstand the debt crisis. The 1.8 percent tumble on July 18 took the drop from this year’s high to 9.98 percent, just short of the 10 percent slide that analysts define as a correction.

The gauge then rebounded 3.8 percent over the final four days of the week.

Banking stocks led gains this week, with the Stoxx 600 Banks Index rallying 5.7 percent. National Bank of Greece soared 28 percent and Alpha Bank surged 23 percent, the biggest gains since 2008. Dexia, the French-Belgian bank forced to shrink its balance sheet by 35 percent by 2014, advanced 19 percent.

REC Rallies

REC rallied 33 percent for the biggest increase in the Stoxx 600 after its largest shareholder, Orkla ASA, said its current share price is too low for it to consider selling its 39.7 percent stake in the Norwegian maker of solar energy components.

“We are a financial investor in REC and that position has not changed,” Orkla Chief Executive Officer Bjoern Wiggen said at its earnings presentation in Oslo on July 20. “We would look for exit opportunities if the price was right, which it is not at the moment.”

Trelleborg AB, the world’s biggest maker of vibration dampening gear, jumped 6.3 percent after saying profit exceeded analyst estimates.

London Stock Exchange Group Plc climbed 7 percent after first-quarter sales rose 2 percent, boosted by income from capital markets and information services.

Electrolux plunged 17 percent, the biggest drop since October 2008, after saying second-quarter net income fell to 561 million kronor ($88.5 million) from 1.03 billion kronor a year earlier. Analysts on average expected profit of 677 million kronor, a survey by Bloomberg showed.

Atlas Copco AB tumbled 4.8 percent after the world’s largest maker of air compressors also reported earnings that trailed projections.

Parmalat SpA dropped 9.6 percent as the Italian diary company’s weighting on the FTSE MIB shrank at the close of trading on July 15. Separately, analysts at Nomura Holdings Inc. said the company may reduce its full-year earnings forecast when it reports first-half results on July 28.

--With assistance from Alexis Xydias in London. Editor: Andrew Rummer

To contact the reporter on this story: Conor Sullivan in London at csullivan39@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net.


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