Bloomberg News

German Stocks Enter Bull Market After Rally on Europe Debt Deal

October 27, 2011

Oct. 27 (Bloomberg) -- German stocks rallied to a 12-week high, with the benchmark DAX Index entering a bull market, after Europe’s leaders agreed to expand a bailout package to stem the region’s sovereign debt crisis.

Deutsche Bank AG and Commerzbank AG, Germany’s largest lenders, climbed the most in more than two years. BASF SE rose 7.5 percent after the world’s biggest chemical maker reported third-quarter profit that beat analysts’ estimates.

The DAX surged 321.77, or 5.4 percent, to 6,337.84 at the close in Frankfurt. The measure has advanced 25 percent from this year’s low on Sept. 12 amid speculation the global economy will avoid another recession and as optimism grew that European policy makers would agree on a solution to the region’s debt woes. An increase of 20 percent is commonly defined as a bull market. The broader HDAX rallied 5.1 percent today.

“The announced package included a number of surprises,” Peter Oppenheimer, a London-based strategist at Goldman Sachs Group Inc., wrote in a report today in which he increased his forecast for the return from European stocks. “Several components of a credible package that can significantly reduce the risk premium in risky assets are being put into place, despite the lack of details.”

Euro-area leaders persuaded bondholders to take 50 percent losses on Greek debt and increased the size of the European Financial Stability Facility, the region’s rescue fund, to 1 trillion euros ($1.4 trillion), responding to global pressure to step up the fight against the sovereign debt crisis.

Crisis Summit

Ten hours of brinkmanship at the second crisis summit in four days delivered a plan that the euro area’s stewards said points the way out of the debt quagmire, even if key details are lacking. Last-ditch talks with bank representatives led to the debt-relief accord, in an effort to quarantine Greece and prevent speculation against Italy and France from ravaging the euro area and wreaking global economic havoc.

Measures include the recapitalization of European banks, a potentially bigger role for the International Monetary Fund, a commitment from Italy to do more to reduce its debt and a signal from leaders that the European Central Bank will maintain bond purchases in the secondary market.

Stocks extended gains as a report showed that the U.S. economy grew in the third quarter at the fastest pace in a year as gains in consumer spending and business investment helped support a recovery on the brink of faltering.

Deutsche Bank, Commerzbank

Deutsche Bank gained 15 percent to 32.80 euros, the largest increase since March 2009. Commerzbank rose 16 percent to 2.04 euros, the biggest jump since July 2009.

BASF climbed 7.5 percent to 54.37 euros after profit beat estimates as price increases and the purchase of cosmetic- ingredient maker Cognis helped limit a drop in margins.

Bayer AG rallied 7.1 percent to 48.01 euros as the maker of drugs and chemicals said third-quarter profit more than doubled. Net income increased to 642 million euros from 285 million euros a year earlier, the Leverkusen, Germany-based company said. Core earnings per share, which exclude one-off items such as litigation costs, totaled 1.12 euros, beating the 1.03 euro average estimate of 20 analysts surveyed by Bloomberg.

Deutsche Lufthansa AG, Europe’s biggest airline by sales, advanced 3.4 percent to 10.39 euros. The company reiterated its guidance for the full year after slicing a planned increase in winter capacity by two-thirds as slowing growth, declining consumer confidence and Europe’s debt crisis hurt demand.

The German flag carrier reported a 27 percent drop in third-quarter earnings as operating profit fell to 575 million euros from 783 million euros a year earlier.

Volkswagen Soars

Volkswagen AG preferred shares surged 10 percent to 130.55 euros, the biggest gain in two years. Operating profit at Europe’s largest carmaker rose 46 percent to 2.89 billion euros in the third quarter, beating the 2.61 billion-euro average estimate of 15 analysts compiled by Bloomberg.

The German manufacturer has a goal of boosting deliveries 11 percent this year to a record 8 million vehicles. VW stuck to a forecast that 2011 revenue and earnings before interest and taxes will be “significantly higher” than last year.

Daimler AG rose 3.1 percent to 39.07 euros as the world’s third-largest maker of luxury vehicles predicted higher fourth- quarter profit on gains at its trucks and vans divisions.

Deutsche Boerse AG advanced 6.2 percent to 41.29 euros after announcing a 100 million-euro ($141 million) buyback.

Rhoen-Klinikum AG sank 6 percent to 14.31 euros as the operator of health-care facilities reported third-quarter net income and sales that missed analysts’ estimates.

--With assistance from Peter Levring in Copenhagen. Editors: Andrew Rummer, Will Hadfield

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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


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