Bloomberg News

European Stocks Rally as Draghi Pledges to Preserve Euro

July 26, 2012

ECB President Mario Draghi

ECB President Mario Draghi said in a speech in London, “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro.” Photographer: Hannelore Foerster/Bloomberg

European stocks climbed the most in almost a month, halting a four-day selloff, after European Central Bank President Mario Draghi said policy makers will do whatever it takes to preserve the euro.

Banco Santander SA (SAN) surged 11 percent and UniCredit SpA jumped 9.2 percent, leading a rally in bank stocks. Unilever (UNA) rose 5.4 percent to the highest price in more than 20 years after sales beat analyst estimates. France Telecom (FTE) SA added 6.4 percent after it also reported results that topped projections.

The Stoxx Europe 600 Index (SXXP) jumped 2.5 percent to 256.58 at the close of trading, for its biggest gain since June 29. The gauge had dropped 4.4 percent the previous four sessions as a surge in Spanish bond yields above 7 percent reignited concern that Europe’s debt crisis is yet to be contained.

“Policy makers don’t want the euro to break up and ultimately will take the necessary decisions to ensure that it keeps together,” said Kevin Lilley, a fund manager at Old Mutual Asset Managers U.K. in London, which oversees about 4 billion pounds ($6.2 billion). “Spain really needs bond yields below 5 percent for the economy to be sustainable -- policy action has to follow.”

Stocks surged after Draghi signaled central bank officials are prepared to do whatever is needed to ensure the euro’s survival and act on surging bond yields. His comments came as Spanish policy makers called on the central bank to fight a renewed bout of financial turmoil that pushed the country’s bond yields to euro-area records this week.

“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” Draghi said during a speech in London today. “And believe me, it will be enough.”

Bonds Advance

Spanish and Italian bonds advanced for a second day. Spain’s two-year yields fell the most this month after Draghi said addressing high yields on sovereign debt was within the central bank’s mandate. German bunds declined as his comments damped demand for the region’s safest assets.

National benchmark indexes rose in 16 of the 18 western- European markets today. The U.K.’s FTSE 100 gained 1.4 percent, France’s CAC 40 jumped 4.1 percent and Germany’s DAX climbed 2.8 percent. Spain’s IBEX 35 jumped 6.1 percent, while Italy’s FTSE MIB surged 5.6 percent.

In the U.S., a report from the Commerce Department showed orders for durable goods climbed 1.6 percent in June. The median forecast of economists surveyed by Bloomberg called for a 0.3 percent gain.

Fewer Americans than forecast filed first-time claims for jobless benefits last week, extending the period of volatility typically seen in July. Applications fell by 35,000 in the week ended July 21 to 353,000, the Labor Department said today. Economists forecast 380,000 claims, according to the median estimate in a Bloomberg News survey.

Banks Gain

Santander, which today reported a 93 percent slump in second-quarter profit, jumped 11 percent to 4.51 euros. Banco Bilbao Vizcaya Argentaria, Spain’s largest bank, climbed 11 percent to 4.91 euros. UniCredit (UCG), Italy’s biggest lender, surged 9.2 percent to 2.58 euros in Milan.

Unilever rose 5.4 percent to 2,256 pence, the highest level since at least September 1988, after the world’s second-biggest consumer-goods maker announced a 5.8 percent gain in underlying revenue in the second quarter, boosted by the growth of personal-care products in Asia. The average analyst estimate surveyed by the company was for a 4.8 percent increase.

France Telecom

France Telecom climbed 6.4 percent to 10.93 euros after the country’s largest phone company reported a 3.2 percent decline in first-half revenue to 21.8 billion euros as price cuts helped slow customer defections. That compares with the 21.7 billion- euro average analyst estimate.

ABB Ltd. (ABBN) gained 5.2 percent to 16.61 Swiss francs after the maker of power-transmission equipment said it’s more confident about its short-term outlook as orders increased in China in recent months and it experienced “sustained order growth” in the U.S. Net income for the second quarter still fell 27 percent to $656 million, missing analyst estimates.

Telefonica SA (TEF) rallied 3.4 percent to 8.95 euros. The shares had tumbled as much as 8.7 percent after Europe’s biggest phone company suspended its 1.50 euro-a-share dividend for 2012 and reduced a revenue forecast.

Alcatel-Lucent (ALU) sank 6.1 percent to 82.2 euro cents after France’s largest network-equipment supplier said it will cut 5,000 jobs as part of a plan to save an additional 750 million euros. The company’s net loss, its first in five quarters, was 254 million euros compared with net income of 43 million euros a year earlier.

PSA Peugeot Citroen (UG) slid 2 percent to 5.96 euros. Europe’s second-largest automaker was lowered to two levels below investment grade by all three main rating services after the it posted a widening loss at its automotive division yesterday.

Royal Dutch Shell Plc (RDSA) slid 2.3 percent to 2,138 pence as Europe’s biggest oil company today reported a 13 percent drop in second-quarter profit, excluding one-time items and inventory changes, to $5.7 billion. That missed the average analyst estimate of $6.3 billion.

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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