Bloomberg News

European Stocks Surge for Fifth Week After EU Debt-Crisis Deal

October 28, 2011

Oct. 28 (Bloomberg) -- European stocks climbed for a fifth week, the longest stretch of gains in 18 months, after the region’s leaders struck a deal to enact measures to contain the sovereign debt crisis following months of negotiations.

An index of banks surged the most since July 2010 as Credit Agricole SA and Deutsche Bank AG jumped more than 19 percent. Kazakhmys Plc, Kazakhstan’s biggest copper producer, and SSAB AB, the Stockholm-based steelmaker, led basic-resources companies to the largest gain in more than two years. BP Plc, Merck KGaA and Renault SA rallied at least 6 percent after results topped analyst estimates.

The Stoxx Europe 600 Index climbed 4.2 percent to 249 this week. The gauge has surged 10 percent in October, heading for its biggest monthly advance since April 2009, amid speculation the economy will evade another recession and Europe will avoid the worst effects of the region’s debt crisis. The measure has risen 16 percent from this year’s low on Sept. 22.

“We got the right headlines on solving the euro crisis,” said Lars Rohde, chief executive officer of the Hilleroed, Denmark-based ATP pension fund, which manages about $105 billion. “Stocks are showing strong gains, but the devil still lies in the detail.”

European leaders agreed to boost the firepower of the region’s rescue fund to 1 trillion euros ($1.4 trillion) and persuaded bondholders to take 50 percent losses on Greek debt, responding to pressure to come up with a credible plan before next week’s Group of 20 meeting in France.

14th Summit

The measures include recapitalization of European banks, a potentially bigger role for the International Monetary Fund and a commitment from Italy to reduce its debt. The Oct. 26 summit was the 14th in the 21 months since Europe pledged solidarity with Greece to help the nation avoid default.

The announcements “should satisfy market expectations in the shorter term, while falling short of resolving the underlying challenges facing the euro-zone economy,” Peter Oppenheimer, chief global equity strategist at Goldman Sachs Group Inc. in London, wrote in a report. “Uncertainties need to be resolved quickly and credibly in order to sustain a positive market reaction.”

Goldman Sachs raised its three-month target for the Stoxx 600 to 255 from 220 yesterday.

Portuguese Stocks Fall

National benchmark indexes climbed in all 18 Western European markets this week, except Portugal. The U.K.’s FTSE 100 jumped 3.9 percent, France’s CAC 40 Index gained 5.6 percent and Germany’s DAX Index increased 6.3 percent. Portugal’s PSI-20 slipped 0.8 percent as Banco BPI SA tumbled 9.8 percent.

The Stoxx 600 Banks Index advanced 9.1 percent this week, the most since July 2010. Credit Agricole rallied 27 percent and Deutsche Bank, Germany’s largest lender, jumped 19 percent. BNP Paribas SA, France’s biggest bank, surged 14 percent and Barclays Plc rose 11 percent.

A gauge of basic-resources companies soared 11 percent, the largest increase since February 2009, as reports showed Chinese manufacturing may expand in October for the first time in four months while Japan’s exports increased in September.

Kazakhmys rose 19 percent after saying demand remains strong even in the face of financial market turmoil. The mining company expects to meet all production targets, Chief Executive Officer Oleg Novachuk said.

SSAB surged 28 percent, the biggest increase since 1992, after posting third-quarter net income and sales that topped analysts’ projections.

BHP, Rio Tinto

BHP Billiton Ltd. and Rio Tinto Group, the world’s largest mining companies, rallied 11 percent and 15 percent, respectively, as copper headed for its biggest weekly gain on record on the London Metal Exchange.

Stocks also advanced as more than 100 companies in the Stoxx 600 reported earnings this week. Half of the 140 companies in the gauge that have released results since Oct. 11 beat analysts’ per-share profit estimates, according to data compiled by Bloomberg.

BP climbed 6.3 percent in London trading after adjusted earnings for the third quarter fell less than expected and as Europe’s second-largest oil company increased an asset sales target by 50 percent.

Merck KGaA jumped 14 percent after the Germany drugmaker reported third-quarter profit of 226.6 million euros, beating analysts’ estimates because of growth at the Merck Serono pharmaceutical and Millipore equipment businesses.

Renault Rallies

Renault, France’s second-biggest carmaker, surged 15 percent. A 12 percent increase in third-quarter revenue to 9.75 billion euros beat projections on higher demand for the Sandero model in Brazil and Russia.

Elsewhere, Logitech International SA soared 20 percent after the world’s largest maker of computer mice confirmed its full-year guidance following three profit warnings in the past seven months.

PPR SA advanced 11 percent, the most since July 2009. The French owner of the Gucci luxury-goods brand reported third- quarter sales that surpassed analyst estimates and said it expects to post an improved full-year financial performance.

BASF SE climbed 8.3 percent for the largest increase in almost a year. The world’s biggest chemicals maker reported better-than-estimated profit as price increases and the acquisition of cosmetic-ingredient maker Cognis helped limit a drop in margins.

Portugal’s Banco BPI dropped 9.8 percent after saying it will study different options to meet new capital requirements, including the possibility of using a 12 billion-euro recapitalization facility for Portuguese lenders that’s part of the country’s financial assistance program.

Reckitt Benckiser Group Plc lost 6.2 percent after the maker of Lysol cleaners forecast lower sales and profit at its pharmaceutical division in the fourth quarter because of U.S. health-care reforms and a price increase for Suboxone tablets.

--With assistance from Peter Levring in Copenhagen. Editor: Andrew Rummer

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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