Bloomberg News

European Stocks Rise on Fiscal Union, China Investment Report

December 09, 2011

Dec. 9 (Bloomberg) -- European stocks advanced, paring a weekly decline, after the euro-area leaders agreed on a fiscal union and a report said China’s central bank will set up $300 billion of funds to invest overseas.

Banks climbed after policy makers watered down a demand that bondholders share the cost of bailing out debt-ridden euro nations. Alcatel-Lucent SA increased 7.1 percent after analysts upgraded the shares. Daimler AG led gains in carmakers after saying its Mercedes-Benz unit targets record output this year. K+S AG fell after U.S. rival Potash Corp. planned production cuts on weaker demand.

The benchmark Stoxx Europe 600 added 1.2 percent to 240.51 at the close in London, rising for the first time in four days. The gauge pared its losses to less than 0.1 percent this week as policy makers convened at the debt-crisis summit in Brussels.

“One thing which is positive is that there’s an agreement on having balanced government budgets and on what to do with countries that don’t have balanced budgets,” said Raimund Saxinger, a fund manager at Frankfurt-Trust Investment GmbH, which oversees about $22 billion. “It remains to be seen what it means in terms of economic policies but I am not disappointed for not having details as these things take time.”

Fiscal Union

German Chancellor Angela Merkel said the leaders of the 17 euro nations agreed to tighten budget controls and channel 200 billion euros ($267 billion) through the International Monetary Fund to nations requiring assistance.

In an accord hailed by ECB President Mario Draghi, the leaders outlined a fiscal plan to prevent future debt run-ups, accelerated the start of a planned 500 billion-euro rescue fund and diluted bondholder loss-sharing provisions.

European stocks maintained gains after a report showed confidence among U.S. consumers rose more than forecast in December to a six-month high. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 67.7 this month from 64.1 at the end of last month. The median estimate of 73 economists surveyed by Bloomberg News called for a reading of 65.8.

A Reuters report said China will create a new investment vehicle to improve returns on its foreign-exchange reserves. The vehicle will operate one fund targeting investment in the U.S. and another focused on Europe, Reuters reported, citing an unidentified person with knowledge of the matter.

National benchmark indexes climbed in 15 of 18 western European markets. France’s CAC 40 rose 2.5 percent, the U.K.’s FTSE 100 advanced 0.8 percent and Germany’s DAX Index increased 1.9 percent.

Banks, Carmakers

Banks recovered from earlier losses. Barclays rallied 5.4 percent to 190.2 pence in London, gaining for the first time in four days. Italy’s Intesa Sanpaolo SpA rose 7.9 percent to 1.28 euros in Milan and Deutsche Bank AG increased 4.7 percent to 29.59 euros in Frankfurt.

Daimler jumped 4.1 percent to 34.16 euros, rebounding from three days of declines. The world’s third-largest maker of luxury vehicles said its Mercedes-Benz car factories are operating at “near full capacity.” Mercedes will increase capacity by spending about 2 billion euros ($2.68 billion) on its Chinese joint venture, and between 2010 and 2014 it will invest $2.4 billion in its U.S. plant. The unit expects to produce more than 1.25 million vehicles in 2011.

Carmakers were the best-performing group in the Stoxx 600 today, with a gain of 2.6 percent. Peugeot SA jumped 3.3 percent to 12.87 euros, while Fiat SpA added 4.7 percent to 3.94 euros.

Alcatel-Lucent, Bellway

Alcatel jumped 7.1 percent to 1.26 euros after Sanford C. Bernstein & Co. raised its recommendation for France’s largest telecommunications equipment supplier to “outperform” from “market perform” and called for a breakup of the company to give a “significant upside” to shareholders.

Bellway Plc gained 2.8 percent to 749 pence after the U.K. homebuilder said completed sales will increase by about 5 percent in the six months through January. The company also reported a 14 percent increase in sales reservations from Aug. 1 to Nov. 30 compared with a year earlier. Average prices rose by almost 7 percent.

K+S, Europe’s largest potash producer, dropped 2.7 percent to 35.08 euros, the lowest price since May 2010. Potash Corp., the world’s largest fertilizer producer, said it plans an eight- week production shutdown at its Lanigan mine starting Jan. 8 and will close the Rocanville facility for six weeks beginning Dec. 25.

Separately, Morgan Stanley cut the 2012 earnings-per-share estimate for K+S by 36 percent, citing forecasts for lower potash demand.

African Barrick Gold Plc slipped 2.1 percent to 509 pence after the largest producer of the precious metal in Tanzania said fourth-quarter output will miss forecasts because of power outages.

--Editors: Srinivasan Sivabalan, Will Hadfield

To contact the reporter on this story: Julie Cruz at jcruz6@bloomberg.net

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


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