Bloomberg News

European Stocks Climb to Two-Month High, Paring Annual Retreat

December 30, 2011

Dec. 30 (Bloomberg) -- European stocks climbed to a two- month high, paring the Stoxx Europe 600 Index’s first annual decline in three years, as German Finance Minister Wolfgang Schaeuble ruled out a euro-area breakup.

Banco Comercial Portugues SA added 3.8 percent on a report that Chinese lenders may be interested in investing in Portugal’s second-biggest publicly traded bank by market value. Hellenic Telecommunications Organization SA jumped 8.3 percent after agreeing to sell a stake in a Serbian phone company. Health-care stocks, this year’s best-performing industry group, advanced as Elan Corp. rose 2.6 percent.

The Stoxx 600 gained 0.9 percent to 244.54 at the close of trading, the highest level since Oct. 28. The gauge has still retreated 11 percent this year, the first decline since 2008’s 46 percent plunge, as the euro region’s sovereign-debt crisis spread from Greece to Italy and Spain, driving yields on government debt to records.

“We’ve had so much difficulty and a bad 2011,” said Pierre Mouton, a fund manager who helps oversee $7.5 billion at Notz Stucki & Cie. in Geneva. “There still are a lot of people on the defensive. If the first two to three weeks of January are good, a lot of people who aren’t too invested will start buying stocks. I’m relatively optimistic.”

Post-Christmas trading has been slow, with daily volume on the Stoxx 600 this week dipping to 32 percent of this year’s average, according to data compiled by Bloomberg.

FTSE, DAX

National benchmark indexes advanced in all of the 17 western European markets open today, except Iceland. The U.K.’s FTSE 100 rose 0.1 percent, trimming this year’s decline to 5.6 percent. Germany’s DAX gained 0.9 percent for an annual loss of 15 percent. Both gauges closed early for the New Year holiday.

“As traders say goodbye and probably good riddance to 2011, a year that saw most of the European and Asian indices recording double-digit losses, traders may not be so welcoming to 2012 either,” Jonathan Sudaria, a trader at London Capital Group, wrote in e-mailed comments.

The Stoxx 600 gained 5.6 percent from the start of the year to its peak on Feb. 17 before declining as concerns about the debt crisis mounted. The index sank 26 percent from that high to its low on Sept. 22, entering a bear market. The gauge had its worst third quarter since 2002, dropping 17 percent, as U.S. leaders wrangled over deficit cuts and European policy makers struggled to contain the debt crisis.

Bailout Fund

An Oct. 26 agreement to bolster the region’s bailout fund, the European Financial Stability Facility, stalled as Germany and France differed over how to tackle the crisis. France called for using the European Central Bank as a backstop, while Germany rejected it. Chancellor Angela Merkel listed using the ECB as lender of last resort, issuing joint euro-area bonds and going in for a “snappy debt cut” as unworkable proposals.

New governments took charge in Greece and Italy last month, raising optimism that the region’s two most-indebted nations will implement austerity measures. Greek Prime Minister Lucas Papademos won approval for the final 2012 budget designed to regain the confidence of creditors and secure resumption of international financing.

The Stoxx 600 has rallied 14 percent from this year’s low amid better-than-estimated U.S. economic data and optimism that euro-area policy makers will contain the debt crisis.

Banks had the biggest drop among 19 industry groups this year, sliding 32 percent, on growing concern that the fiscal crisis will force at least one nation to default on its debt. Health-care and food stocks advanced as investors sought companies whose earnings are less tied to economic growth.

Maintain Confidence

The decline in European equities compares with an 17 percent tumble in the MSCI Asia Pacific Index and a 0.3 percent gain in the Standard & Poor’s 500 Index of U.S. shares as of 12:05 p.m. in New York.

Schaeuble ruled out a euro-area breakup and said the region is doing everything to maintain confidence in the euro, according to an interview with Germany’s Handelsblatt.

Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said economic growth in the euro region “isn’t good” and the world economy is growing only in some Asian and African countries.

“This means that in 2012 we have to be prepared for the situation to become more foggy, to say it in a friendly way,” Juncker said today on RTL Luxembourg radio.

Spanish Cuts

Spanish Prime Minister Mariano Rajoy will cut spending by 8.9 billion euros ($11.5 billion) in the first quarter and raise taxes, the first steps in a plan to slash a budget deficit that will breach the target for this year. The new government was forced to seek 6 billion euros from higher taxes on income, savings and above-average-value homes after inheriting a deficit of 8 percent of gross domestic product, spokeswoman Soraya Saenz de Santamaria said.

Banco Comercial Portugues jumped 3.8 percent to 13.6 euro cents, the highest in a month, as Lusa reported that Chinese banks may be interested in investing in the company. The news agency cited Cao Guangjing, chairman of China Three Gorges Corp.

China’s economic growth is expected to be more than 9 percent this year, the official Xinhua News Agency said in a New Year’s editorial today.

Hellenic Telecommunications rallied 8.3 percent to 2.88 euros. Telekom Srbija and OTE signed an agreement in Athens for the Greek company to sell a 20 percent stake in the Serb national fixed-line and mobile-service provider back to Telekom Srbija. The value of the transaction is 380 million euros, Telekom Srbija said.

Elan, Actelion

Elan rose 2.6 percent to 10.72 euros, the highest since July 2008. The Daily Mail newspaper attributed yesterday’s 2.2 percent gain to speculation Johnson & Johnson may be interested in acquiring the company.

Actelion Ltd., a Swiss drugmaker, added 1.4 percent to 32.25 francs. Health-care stocks climbed 0.8 percent as a group.

Vestas Wind Systems A/S gained 4.9 percent to 62 kroner as the biggest wind-turbine maker received a 69-megawatt order for a Swedish project and a 24-megawatt contract for France, increasing hopes the company will meet its order guidance in 2011.

--With assistance from Peter Levring in Copenhagen. Editors: Andrew Rummer, Srinivasan Sivabalan

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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