Bloomberg News

European Stocks Gain on Rescue-Fund Reports; Commerzbank Climbs

October 19, 2011

Oct. 19 (Bloomberg) -- European stocks advanced for the first time in three days amid conflicting reports that France and Germany have reached a deal on expanding the euro area’s rescue fund.

Natixis and Commerzbank AG jumped more than 2.5 percent as a gauge of banks rebounded from four days of declines. Software AG, Tele2 AB and British Sky Broadcasting Group Plc rallied after reporting results. Hochtief AG gained 3.7 percent as Goldman Sachs Group Inc. upgraded the construction company.

The benchmark Stoxx Europe 600 Index climbed 0.6 percent to 236.71 at the close in London after falling 1.3 percent in the previous two days. The measure has rallied 10 percent from this year’s low on Sept. 22 amid speculation policy makers will find a solution to Europe’s debt crisis.

“The market seems to be in a positive frame of mind,” said Andrea Williams, who helps manage $990 million as head of European equities at Royal London Asset Management. “We are just waiting for the weekend for an announcement from European leaders. Sentiment is fairly fragile until we know exactly what the announcement will be and how they plan to execute it.”

German Chancellor Angela Merkel said yesterday that the euro-area summit on Oct. 23 will mark an “important step,” though not the final one, in solving the debt crisis. The comments marked the second time in two days that she sought to lower expectations.

Guardian Report

The Guardian newspaper reported that Germany and France have agreed to boost the region’s rescue fund, known as the European Financial Stability Facility, to 2 trillion euros ($2.8 trillion) from 440 billion euros. In contrast, the Financial Times Deutschland said German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that the EFSF’s firepower may be increased to a maximum of 1 trillion euros.

A person with direct knowledge of the talks told Bloomberg News that France and Germany are still working on how to increase the effective power of the fund. Such a measure needs to be part of a comprehensive agreement to help banks and Greece, the person said who declined to be named.

“Rumors of a European bailout deal have sparked a global surge in risk-on bets,” Jonathan Sudaria, a trader at London Capital Group, wrote in e-mailed comments. “With markets jumping from headline to headline, traders are finding it increasingly difficult to stay with positions, reducing their investment horizon to the next major rumor.”

BOE Asset Purchases

Bank of England officials voted unanimously to expand the size of their asset-purchase program on Oct. 6 as strains related to Europe’s debt situation created a “compelling” case to add stimulus, according to the minutes of the decision published today.

Governor Mervyn King said a second round of stimulus is needed to prevent growth from stalling, as he called on other nations to play their part in stabilizing the world economy. King’s comments were in prepared remarks for a speech today in Liverpool, England.

National benchmark indexes climbed in 11 of the 18 western European markets. The U.K.’s FTSE 100 Index gained 0.7 percent, France’s CAC 40 Index increased 0.5 percent and Germany’s DAX Index advanced 0.6 percent.

A gauge of bank shares rebounded from a four-day decline as the cost of insuring against default on European corporate debt retreated. France’s Natixis rallied 2.8 percent to 2.25 euros, while Commerzbank, Germany’s second-largest lender, rose 4.7 percent to 1.63 euros.

Software AG Surges

Software AG surged 12 percent to 30.45 euros, its biggest gain since 2009. Germany’s second-largest maker of business software confirmed its full-year sales target after third- quarter operating profit rose to 71 million euros.

Tele2 added 2.2 percent to 133.70 kronor. Sweden’s second- biggest phone company reported quarterly profit of 1.26 billion kronor ($191 million), in line with estimates, as it expanded in Russia.

BSkyB gained 5.1 percent to 710 pence after the U.K.’s biggest pay-TV broadcaster reported a 16 percent increase in first-quarter operating profit to 295 million pounds ($466 million) as the company sold more products to its existing subscribers. That beat the average analyst estimate of 286.5 million pounds.

Diageo Plc jumped 4 percent to 1,331 pence after the world’s largest distiller reported first-quarter sales that topped analyst forecasts, boosted by growth in Latin America, Asia and Africa.

Accor, Hochtief

Accor SA advanced 2.5 percent to 22.62 euros after Europe’s largest hotel company reported a 2.7 percent gain in third- quarter sales to 1.62 billion euros, matching estimates, as more guests stayed at its economy hotels.

Hochtief rallied 3.7 percent to 52.98 euros after Goldman Sachs raised its recommendation for the company to “conviction buy” from “neutral.”

Alcatel-Lucent SA sank 7.7 percent to 1.96 euros as Oddo Securities and Jefferies Group Inc. lowered their recommendations for the French phone-equipment maker to “neutral” and “underperform,” respectively.

The shares earlier briefly erased losses after Alcatel said it received a $1.5 billion offer from Permira Advisers LLP for its Genesys business.

Home Retail Group Plc sank 17 percent to 99.5 pence after the owner of U.K. Homebase outlets said first-half profit fell 70 percent as Britons spent less at its Argos catalog unit.

--With assistance from Adria Cimino in Paris. Editors: Andrew Rummer, Will Hadfield

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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