Bloomberg News

European Stocks Climb Amid Speculation of Assistance for Banks

October 05, 2011

Oct. 5 (Bloomberg) -- European stocks advanced for the first time in four days amid speculation policy makers are examining measures to shield banks from the region’s sovereign- debt crisis.

Dexia SA snapped a four-day plunge after France and Belgium said a “bad bank” will be set up to hold its troubled assets. BNP Paribas SA and Societe Generale SA, France’s biggest lenders, climbed more than 8 percent. Rio Tinto Group led mining companies higher. European Aeronautic, Defence & Space Co. rose 5.7 percent after saying 2011 will be a “very good” year.

The Stoxx Europe 600 Index advanced 3.1 percent to 224.15 at the 4:30 p.m. close in London, the biggest increase in a week. The gauge had declined 5 percent in the previous three days, leaving it trading at 9.1 times estimated earnings, near the cheapest since March 2009, data compiled by Bloomberg show.

“It seems politicians behind the scenes are making a determined effort to get more ahead of the curve dealing with the euro debt crisis,” said Witold Bahrke, a Copenhagen-based senior strategist at PFA Pension A/S, which manages $45 billion. “Politicians may be moving closer to securing a recapitalization of banks and a more drastic solution on Greece.”

The Financial Times quoted Olli Rehn, European Union commissioner for economic affairs, late yesterday as saying there’s an “increasingly shared view” that the region needs a coordinated approach to halt the debt crisis. EU officials are working on plans to boost bank capital to contain the euro- region’s debt crisis, the International Monetary Fund said.

‘Working Together’

“There is no secret at all that European authorities and the European Commission are all working together on a plan to bring more official capital, more public-sector capital, into the banking sector,” Antonio Borges, the IMF’s European department head, said today in Brussels. “More should be done on a cross-border basis.”

Benchmark indexes rose in all 18 western European markets, with the exception of Iceland. The DAX climbed 4.9 percent in Frankfurt. France’s CAC 40 rose 4.3 percent and the U.K.’s FTSE 100 advanced 3.2 percent.

The VStoxx Index, which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, tumbled 9.6 percent to 45.6, the biggest drop in five weeks.

Signs that the debt crisis is hampering growth have prompted speculation the ECB will lower borrowing costs at a policy meeting tomorrow. Eleven of 52 economists surveyed by Bloomberg say it will cut its benchmark interest rate by at least a quarter-percentage point from the current rate of 1.5 percent. The others expect no change.

Retail Sales

European retail sales declined in August as the debt crisis and slowing economic growth prompted households from Germany to Ireland to cut spending. Sales in the 17-nation euro region decreased 0.3 percent from July, when they rose 0.2 percent, the European Union’s statistics office said. That matched the median forecast of 22 economists in a Bloomberg survey.

“Today’s relief will be short-lived as in the past weeks,” said Markus Wallner a senior equity strategist at Commerzbank AG in Frankfurt. “It all depends on policy news and the rise today is not sustainable. If politicians want to get ahead of the game they’ll have to respond faster.”

Data from ADP Employer Services showed U.S. companies added 91,000 jobs last month, beating the average estimate of 75,000 workers in a Bloomberg survey of economists. The release comes two days before the Labor Department’s employment report for September, which is forecast to show an increase of 60,000 jobs in the world’s largest economy.

Dexia Gains

Dexia rose 1.3 percent to 1.02 euros after a four-day, 34 percent tumble. Belgium’s biggest bank plans to pool its troubled assets into a “bad bank” with Belgian and French government guarantees to protect depositors and its municipal- lending business.

The Belgian-French lender bailed out by the two governments in 2008 will put its “legacy” division, which held 113 billion euros ($150 billion) of assets at the end of June, into the bad bank, Belgian Prime Minister Yves Leterme told reporters in Brussels yesterday. Finance Minister Didier Reynders said details of the plan will be released after talks with partners.

Dexia emerged from the 1996 merger of Credit Local de France and Credit Communal de Belgique SA, the biggest municipal lenders in their respective countries. Unlike Credit Local de France, which relied exclusively on wholesale funding for its lending, the Belgian firm also operated a retail bank in Belgium and a private bank in Luxembourg.

Banks Climb

BNP Paribas rallied 8.5 percent to 29.49 euros as a gauge of European banks rose 4.6 percent. Societe Generale advanced 8.7 percent to 19.60 euros and Credit Agricole SA increased 9.9 percent to 5.17 euros. KBC Groep NV, Belgium’s biggest bank and insurer by market value, jumped 15 percent to 17.18 euros, the largest gain since May 2010.

Axa SA, Europe’s second-biggest insurer, gained 8.8 percent to 9.70 euros after the company reiterated its earnings target and said the balance sheet remains solid. The insurer still expects 10 percent annual growth in per-share operating earnings through 2015, the company said in a presentation on its website.

Basic resources shares jumped 5.8 percent for the second- biggest gain among the 19 industry groups in the Stoxx 600. Rio Tinto, the world’s second-biggest mining company, rallied 7.1 percent to 2,905.5 pence and BHP Billiton Ltd., the largest, gained 6.7 percent to 1,778 pence.

‘Very Good’ Year

EADS, the parent of planemaker Airbus, advanced 5.7 percent to 20.96 euros. Chief Marketing and Strategy Officer Marwan Lahoud said in an interview on BFM radio that the company will have a “very good” 2011, helped by recovery in the global aviation market.

Petroleum Geo-Services ASA and CGGVeritas led a rally in oilfield-services companies, with both stocks rebounding from the lowest levels in more than two years. PGS climbed 11 percent to 57.95 kroner and CGGVeritas, the world’s largest seismic surveyor of oilfields, advanced 12 percent to 13 euros.

Cap Gemini SA jumped 14 percent to 25.68 euros, the biggest gain since 2003. Europe’s largest computer-services company hasn’t yet seen significant spending cuts from clients and still expects full-year revenue growth of 9 percent to 10 percent, Dow Jones reported, citing an interview with Chief Executive Officer Paul Hermelin.

J Sainsbury Plc, the U.K.’s third-biggest supermarket company, climbed 3.6 percent to 284.6 pence after saying second- quarter sales rose at the same pace as the first three months of the year as shoppers bought more of its own-brand food ranges.

--With assistance from Adria Cimino in Paris. Editor: Andrew Rummer

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

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


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