Sun, Oct 09, 2011 - Page 10 News List

European stocks rise on UK easing and US jobs report

Bloomberg

European stocks advanced for a second week as central banks eased lending, investors speculated that policymakers would act to support the region’s debt crisis and US jobs data spurred optimism the world’s largest economy would avoid a recession.

The STOXX Europe 600 Index advanced 2.6 percent to 231.99 this week as the Bank of England expanded its bond-purchase program and German Chancellor Angela Merkel said she was ready to discuss recapitalizing lenders.

Still, the gauge has retreated 20 percent since this year’s high on Feb. 17 and is trading at 9.8 times estimated corporate earnings, near the cheapest since March 2009, according to data compiled by Bloomberg.

‘RELIEF’

“The fact that governments have acknowledged that banks need to be recapitalized is a relief,” said Arnaud Scarpaci, a fund manager at Agilis Gestion SA in Paris. “This week’s employment numbers were good news for the market. A lot of investors were betting on a recession and now they have to realize that won’t happen.”

The Bank of England said on Thursday that it would boost bond purchases as government budget cuts and Europe’s debt crisis jeopardize Britain’s economic recovery. The Monetary Policy Committee raised the ceiling for so-called quantitative easing to £275 billion (US$423 billion) from £200 billion.

The European Central Bank announced the reintroduction of yearlong loans, giving banks access to unlimited cash through January 2013. It will also resume purchases of covered bonds to encourage lending.

At the same time, the European Commission is pushing for a coordinated capital injection into lenders and Merkel said policymakers “shouldn’t hesitate” if it turns out financial institutions were undercapitalized.

The EU will discuss bank capital at its summit on Oct. 17 to 18, with finance ministers left to carry out the implementation, Merkel said on Friday after talks with Dutch Prime Minister Mark Rutte.

Using the enhanced European rescue fund to support banks should only be permitted as a measure of last resort, she said.

GERMANY KEY

“Solving the European debt crisis is all about Germany,” said Morten Kongshaug, chief equity strategist at Danske Bank A/S in Copenhagen. “If they want to solve this they can do it.”

National benchmark indexes gained in 14 of Europe’s 18 western markets. France’s CAC 40 rallied 3.8 percent, the UK’s FTSE 100 rose 3.4 percent and Germany’s DAX increased 3.2 percent. Greece’s ASE slid 6.8 percent.

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