Bloomberg News

European Stocks Climb as Policy Makers Pressed for Debt Solution

September 26, 2011

Sept. 26 (Bloomberg) -- European stocks rose for a second day as foreign governments and central banks urged policy makers in Europe to intensify efforts to contain the region’s debt crisis following meetings with the International Monetary Fund.

Allianz SE and Axa SA, Europe’s biggest insurers, jumped the most in more than a year. Deutsche Bank AG led lenders higher amid speculation the European Central Bank may cut interest rates and as executives called for a U.S.-style Troubled Asset Relief Program in Europe. Fresnillo Plc tumbled 6.9 percent as silver had the biggest three-day drop since 1980.

The benchmark Stoxx Europe 600 Index advanced 1.9 percent to 220.28 at the 4:30 p.m. close in London, rebounding from an earlier loss of 1.4 percent, as the IMF said that euro-area countries will do whatever is necessary to end the region’s government-debt crisis.

“Nothing concrete has come out of the IMF meeting, but there is a lot of talk about the Europe TARP and rate cuts so that has led to optimism in some quarters,” said Ioan Smith, a director at Knight Capital Europe Ltd. in London. “I still think there is a long way to go.”

More than $3.5 trillion was wiped from equity values globally last week amid concern policy makers are struggling to contain a debt crisis that has Greece teetering on the edge of a default. The Stoxx 600 has lost 24 percent from this year’s high on Feb. 17, leaving the gauge trading at about 9.3 times the estimated earnings of its companies, near the lowest valuation since March 2009, Bloomberg Data shows.

Benchmark Indexes

National benchmark indexes rallied in all 18 western European markets today, except Greece and Norway. Germany’s DAX gained 2.9 percent and France’s CAC 40 rose 1.8 percent. The U.K.’s FTSE 100 advanced 0.5 percent as mining companies limited the increase.

German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states and said expanding the powers of the region’s rescue fund, the European Financial Stability Facility, was necessary to avert contagion.

The fund’s permanent successor, due to take effect in mid- 2013, is needed “so we can in fact let a state go insolvent,” she said late yesterday on ARD television.

Policy makers can make the EFSF more “efficient” by leveraging it without involving the ECB, German Finance Minister Wolfgang Schaeuble said over the weekend. He also raised the prospect of bringing in the permanent backstop before 2013.

Bank Capital

A report by JPMorgan Chase & Co. today said euro-area banks need at least 150 billion euros ($203 billion) of capital provided through a Europe-wide TARP akin to the U.S. The $700 billion program was started in 2008 to inject capital into banks following the collapse of the U.S. housing market and the bankruptcy of Lehman Brothers Holdings Inc.

Goldman Sachs Group Inc. President Gary D. Cohn said at a panel discussion with other bank executives yesterday that modeling a European financial rescue after the U.S. Treasury Department’s TARP “would be a good solution.”

Allianz and Axa surged 10 percent to 65.01 euros and 8.2 percent to 8.98 euros, respectively. Insurance companies were the best performers in the Stoxx 600 today, advancing 6.4 percent as a group for the biggest jump since May 2010.

Deutsche Bank and Commerzbank AG rose 8.7 percent to 25.12 euros and 7.8 percent to 1.76 euros, respectively. BNP Paribas SA, France’s biggest bank, rallied 4 percent to 26.33 euros. Intesa Sanpaolo SpA climbed 8.3 percent to 1.10 euros in Milan.

ECB Rates

BofA Merrill Lynch said in a report the European Central Bank may cut interest rates by 50 basis points at its next meeting on Oct. 6 instead of November or early 2012 following meetings with the IMF. ECB Governing Council member Ewald Nowotny said in an interview with Market News International that he cannot exclude that the bank will lower rates, while Yves Mersch said speculation about a 50 basis-point cut was unfounded.

Dexia SA advanced 6.6 percent to 1.40 euros after Les Echos reported the lender is ready to sell 20 billion euros of bond assets to continue as a viable business. The newspaper cited an unidentified person close to the matter.

The bank yesterday denied reports in the French press that a split of the bank is under consideration. Le Figaro said that Dexia shareholders La Banque Postale and state-owned Caisse des Depots et Consignations are working to form a new lender to French municipalities, with Dexia as an investor.

“The long-running rumour of a tie-up between Dexia and CDC and La Banque Postale to create a joint venture for the financing of local authorities has re-emerged as concerns over the solvency and liquidity of banks, notably French banks, have grown,” Alex Koagne, an analyst at Natixis, wrote today.

Bayer Advances

Bayer AG jumped 4.3 percent to 41.10 euros in Frankfurt after a study showed the company’s prostate cancer drug cut death risks by 30 percent.

Fresnillo dropped 6.9 percent to 1,524 pence as precious metals tumbled after CME Group Inc. increased margin requirements on gold and silver. Kazakhmys Plc fell 3.9 percent to 782 pence and Vedanta Resources Plc slid 3.9 percent to 1,070 pence as copper retreated for a seventh day in London.

Kloeckner & Co. SE fell 3.8 percent to 9.25 euros, the lowest close since May. The German steel trader is expecting a weak third quarter due to lower orders and isn’t likely to reach its earning goals for 2011, Deutsches Anleger Fernsehen reported, citing Chief Executive Officer Gisbert Ruehl in an interview.

--With assistance from Julie Cruz in Frankfurt. Editor: Andrew Rummer

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

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


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