Bloomberg News

European Stocks Rally for Third Week on China, U.S. Talks

December 07, 2012

European stocks rallied for a third week, climbing to an 18-month high, amid increasing optimism that China’s economy will sustain its recovery and U.S. lawmakers will reach a compromise to avoid a fiscal deadlock.

Rio Tinto Group led commodity shares higher. Nokia Oyj (NOK1V) gained 14 percent after winning a deal to sell its flagship smartphone in China. European Aeronautic, Defence & Space Co. jumped 15 percent after announcing a new shareholder structure and unveiling a share buyback. GDF Suez (GSZ) SA slid to a record low after saying earnings will decline next year.

The benchmark Stoxx Europe 600 Index (SXXP) advanced 1.2 percent to 279.17 this week, the highest since May 2011. The gauge has rallied 19 percent from this year’s low on June 4 as the European Central Bank and the Federal Reserve expanded bond purchases and U.S. economic data beat estimates.

“Markets are hopeful that a sensible conclusion can be reached on the U.S. fiscal cliff,” Jeremy Batstone-Carr, head of research at Charles Stanley Group Plc in London, said in a telephone interview. “There is a sense of investors adding to risk, but only mildly.”

Republican defectors joined Democrats in signing a letter that called upon President Barack Obama and House Speaker John Boehner to explore “all options” to end an impasse over taxes on top earners. Congress must strike a budget deal before the New Year to prevent $607 billion of automatic tax increases and spending cuts from coming into effect.

Obama said he is willing to make concessions in the talks if Republicans agree to consider taxes on the rich. “We have the potential of getting a deal done,” he said in an interview on Bloomberg Television on Dec. 4.

China Policy

In China, the government under the new leader Xi Jinping will keep macroeconomic policies stable, making adjustments as needed to deal with difficulties, according to a statement from the Communist Party’s Politburo.

The world’s second-largest economy will expand domestic demand, actively promote urbanization, strengthen real-estate controls and support small business, Xinhua reported on Dec. 4, citing the statement issued after a meeting of the ruling party’s top leaders.

Separately, the China Insurance Regulatory Commission abolished a rule limiting insurance companies’ investments in commercial banks, while a report showed manufacturing expanded last month in the world’s second-largest economy.

In the euro area, German Chancellor Angela Merkel hinted at the possibility that her country will eventually accept a write- off of Greek debt. Greece made a 10 billion-euro ($13 billion) offer to buy back bonds.

Rio, Kazakhmys

A gauge of mining companies posted the biggest gain on the Stoxx 600. Rio Tinto climbed 5.3 percent after Credit Suisse Group AG added the world’s second-largest mining company to its “Europe Focus” list. Kazakhmys Plc rose 4.5 percent after saying it will start the development of the Aktogay copper project in Kazakhstan in early 2013.

Nokia rallied 14 percent after winning a deal with China Mobile Ltd. to carry the Finnish mobile-phone maker’s flagship smartphone, Lumia 920T.

EADS jumped 15 percent after the company changed its ownership structure to allow Germany and France to each hold a 12 percent stake. EADS also said it will buy back as much as 15 percent of outstanding shares.

Stagecoach Earnings

Stagecoach Group Plc (SGC), which owns 49 percent of Virgin Trains, advanced 5.9 percent. The company reported first-half pretax profit of 124 million pounds ($200 million), exceeding the average analyst estimate for 114 million pounds.

Mediaset SpA (MS) added 7.3 percent. JPMorgan Chase & Co. reiterated its overweight recommendation, a rating similar to buy, on the broadcaster controlled by former Italian Prime Minister Silvio Berlusconi.

Wincor Nixdorf AG, Europe’s biggest maker of automated teller machines, increased 6.8 percent. The company said it expects earnings before interest, taxes and amortization in 2014 to be higher than in 2013.

GDF Suez declined 12 percent -- to the lowest price since it sold shares to the public in July 2005 -- after Europe’s largest utility by market value forecast lower earnings next year and weakness in 2014. A gauge of utilities was one of the only two industry groups in the Stoxx 600 to decline this week.

Tullow Oil Plc (TLW) slumped 9.6 percent after failing to make a commercial find at the Zaedyus-2 well off French Guiana in South America.

United Internet AG (UTDI) tumbled 6.2 percent as UBS AG placed 11.9 million shares in the German phone company on behalf of Warburg Pincus LLC, the third-largest shareholder. UBS offered the stake at 16 euros to 16.50 euros apiece, according to terms of the deal obtained by Bloomberg News.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

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


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