Bloomberg News

‘Fairy Godmother’ Faith in Europe Boosts Stocks, Grant Says

October 10, 2011

(Updates with U.S. stocks in the last paragraph.)

Oct. 10 (Bloomberg) -- Gains from Europe’s biggest four-day stock surge since 2008 may vanish as German and French leaders have yet to resolve the region’s sovereign debt crisis, said Mark Grant, a managing director at Southwest Securities Inc.

“The equity markets are rallying that the Fairy Godmother’s going to show up,” Grant, based in Fort Lauderdale, Florida, said today in an interview on Bloomberg Television’s “Street Smart” program. “France and Germany don’t have a plan.”

The benchmark Stoxx Europe 600 Index advanced 1.7 percent in London trading, capping a four-day gain of 8.5 percent as German Chancellor Angela Merkel and French President Nicolas Sarkozy set an end-of-October deadline to devise a strategy to recapitalize banks, ease Greece’s debt burden and fix Europe’s economic governance.

The rally may be short-lived as European leaders dismantle Dexia SA, once the world’s leading lender to municipalities, and wrangle over the scope of writedowns on Greek bonds, Grant said. Belgium said today it would buy Dexia’s local consumer-lending unit for 4 billion euros ($5 billion) and guarantee 60 percent of a so-called bad bank after the company’s short-term funding evaporated.

Credit-ratings firms may downgrade bonds issued by Belgium and France which, along with Luxembourg, will guarantee as much as 90 billion euros of interbank and bond funding for Dexia over 10 years, endangering the 17-nation monetary union’s ability to contend with the debt burdens of countries such as Greece, Grant said.

“Once France gets downgraded, then the whole construct is in trouble,” he said. “I think a lot more serious problems are just weeks ahead.”

U.S. stocks also advanced today, with the Standard & Poor’s 500 Index gaining 3.4 percent, the most since Aug. 23.

--Editors: Peter Eichenbaum, William Ahearn

To contact the reporters on this story: Charles Mead in New York at cmead11@bloomberg.net; Lisa Murphy in New York at Lmurphy25@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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