Bloomberg News

German Stocks Rise on Funding Aid Optimism; Deutsche Bank Gains

October 06, 2011

Oct. 6 (Bloomberg) -- German stocks advanced for a second day on optimism policy makers will step up their efforts to contain Europe’s sovereign-debt crisis, even as the European Central Bank left interest rates unchanged.

Deutsche Bank AG, the country’s biggest bank, gained after European Commission President Jose Barroso said the body plans coordinated action to recapitalize banks. ThyssenKrupp AG and Salzgitter AG rallied with metal prices.

The benchmark DAX Index gained 3.2 percent to 5,645.25 at the 5:30 p.m. close in Frankfurt. The gauge jumped 4.9 percent yesterday after the Financial Times quoted Olli Rehn, the European Union’s commissioner for economic affairs, as saying there’s an “increasingly shared view” that the region needs a coordinated approach to halt the debt crisis.

“In Europe, the gloomiest assumptions about the debt crisis are being priced in,” said Milan-based Giordano Lombardo, group chief investment officer at Pioneer Investments, which manages $238 billion. “When market conditions become less volatile, conventional metrics such as price-to-earnings ratios or price-to-book ratios are likely to regain a key role and European equities should have more upside than other markets in this better environment.”

The DAX has retreated 25 percent since this year’s high on May 2 and is trading at 8.8 times the estimated earnings of its companies, near the lowest since 2008, according to Bloomberg data. The broader HDAX Index climbed 3.3 percent today.

Coordinated Action

The European Central Bank resisted calls to cut interest rates at President Jean-Claude Trichet’s final policy meeting today and left the benchmark rate at 1.5 percent. The ECB said it will resume covered-bond purchases and reintroduce yearlong loans for banks.

Financial stocks gained on optimism bank balance sheets will be protected. “We are now proposing to the member states to have a coordinated action to recapitalize banks and so to get rid of toxic assets that they may have,” Barroso said today in a video question-and-answer session. Euro-region lenders may need more than 140 billion euros ($187 billion) through a program similar to the U.S. Troubled Asset Relief Program, Morgan Stanley analysts said.

Deutsche Bank climbed 2.6 percent to 27.2 euros. Smaller rival Commerzbank AG advanced 3.9 percent to 1.85 euros. The Stoxx 600 Banks Index rose 4.2 percent, extending yesterday’s 4.6 percent gain.

German Chancellor Angela Merkel said today policy makers need to “look again” at whether European banks need additional capital.

ThyssenKrupp and Salzgitter, Germany’s biggest steelmakers, jumped 9.4 percent to 19.7 euros and 5.9 percent to 37.29 euros, respectively. Copper, lead, nickel, tin and zinc all advanced on the London Metal Exchange.

--Editors: Srinivasan Sivabalan, Will Hadfield

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net. Julie Cruz in Frankfurt at jcruz6@bloomberg.net

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


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