Bloomberg News

European Stocks Rally After Central Banks Ease Dollar Funding

December 01, 2011

Nov. 30 (Bloomberg) -- European stocks jumped, posting their biggest four-day rally since November 2008, as the Federal Reserve and five other central banks lowered the cost of dollar funding and China cut its reserve ratio for banks.

Barclays Plc and Deutsche Bank AG rallied. BHP Billiton Ltd., the world’s biggest mining company, paced gains in commodity shares. BP Plc, Europe’s second-largest oil company, rose the most in two months.

The Stoxx Europe 600 Index increased 3.6 percent to 240.08 at the close. The benchmark measure has increased 9.1 percent over the last four days. The Stoxx 600 fell as much as 1.1 percent earlier today, after Standard & Poor’s cut the credit ratings of global banks including HSBC Holdings Plc and UBS AG.

“You have central banks acting in a coordinated manner,” said Henrik Drusebjerg, who helps oversee $230 billion as senior strategist at Nordea Bank AB in Copenhagen. “You had China moving today too and you have the hope that European politicians will use their next meeting to get in front of the problem instead of being behind.”

The Fed, Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank agreed to reduce the interest rate on dollar liquidity swap lines by 50 basis points and extend their authorization through Feb. 1, 2013.

Chinese Reserve Ratio

China said it will cut the reserve requirement ratio for banks by 0.5 percentage points from Dec. 5.

“This measure shows that authorities are controlling the evolution of the economy to avoid a collapse in China,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg. “It’s good news. It means China will avoid the worst scenario of a hard landing.”

Euro-area finance ministers approved enhancements to their bailout fund at their meeting in Brussels yesterday.

The Stoxx 600 has still dropped 1.4 percent in November, declining for the sixth month in seven, as Italian bond yields surged and euro-area policy makers struggled to agree on a plan to contain the region’s sovereign-debt crisis.

National benchmark equity indexes advanced in every western-European market except Iceland. The U.K.’s FTSE 100 Index increased 3.2 percent, France’s CAC 40 Index jumped 4.2 percent and Germany’s DAX Index surged 5 percent.

Bank Bonds

Finance ministers of the 27-nation European Union are meeting in Brussels today to seek agreement on how to temporarily guarantee banks’ bond issuance in order to improve funding conditions for lending. EU leaders agreed last month to provide the guarantees to restore investor confidence in banks.

“I’m optimistic in the short term, until year end,” said Guillaume Chaloin, a fund manager at Meeschaert Asset Management in Paris, which oversees $3.3 billion in assets. “We’re waiting for a clear decision from European policy makers. The meeting of finance ministers wasn’t too bad.”

European heads of government meet on Dec. 9 in Brussels, with Germany pushing for governance changes that would tighten enforcement of budget rules. The move might make it easier for the European Central Bank to play a bigger part in supporting euro-area nations, possibly channeling loans through the International Monetary Fund, two officials familiar with the matter said yesterday.

In the U.S., companies added 206,000 workers in November, according to a report by ADP Employer Services. That surpassed economist estimates.

Banks Rebound

A gauge of European banks, which had earlier declined on S&P rating cuts, jumped 4.4 percent. Barclays, Britain’s second- largest lender by assets, surged 6.7 percent to 180.25 pence. Deutsche Bank, Germany’s biggest bank, soared 6.2 percent to 28.62 pence. Lloyds Banking Group Plc jumped 7.1 percent to 24.83 pence.

BHP advanced 6.2 percent to 1,949 pence. Rio Tinto Group, the world’s second-biggest mining company, climbed 6.4 percent to 3,339 pence. Xstrata Plc jumped 6.5 percent to 1,017 pence. A gauge of mining shares rose 6 percent for the best performance in the Stoxx 600.

BP rose 5 percent to 460.75 pence for the largest contribution to the Stoxx 600 index’s advance.

Grifols SA increased 5.4 percent to 12.01 euros for the biggest jump this year. The stock was rated “buy” in new coverage at Deutsche Bank AG.

Nobel Biocare Holding AG climbed 8.3 percent to 11.57 Swiss francs.

Wendel SA soared 16 percent to 53.33 euros, the biggest gain since at least 1989, for the biggest gain in the Stoxx 600. TE Connectivity Ltd., the world’s largest electrical-connections maker, agreed to buy Deutsch Group SAS from Wendel for about $2.1 billion.

Saab AB surged 11 percent to 120.50 kronor, the biggest rally since July 2009, after Switzerland said it decided to buy 22 Gripen fighter jets from Sweden’s Saab AB. The plan will cost about 3.1 billion francs, the country’s defense minister Ueli Maurer said at a press briefing today, adding that the actual order to Saab will be lower.

--With assistance from Alexis Xydias in London and Corinne Gretler in Zurich. Editors: Srinivasan Sivabalan, Will Hadfield

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

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


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