European stocks posted the biggest weekly gain since July as investors speculated that the EU will assist Greece with its finances if required and a smaller-than-estimated drop in US jobs added to evidence the global economic recovery is accelerating.
National Bank of Greece SA surged 13 percent, pushing the nation’s ASE Index to the biggest advance since October. Basic-resource stocks rallied with metal prices, led by Rio Tinto Group PLC and Xstrata PLC. Royal Ahold NV, the Dutch owner of the US Stop & Shop supermarket chain, gained 7 percent after increasing its dividend.
The STOXX Europe 600 Index rallied 4.6 percent this week to 257.09, erasing its loss for the year. The measure retreated for the first two months of 2010 as concerns mounted over budget deficits in Greece, Spain and Portugal and as China moved to restrict lending and stop its economy overheating.
“The expectation that the Greek problem will be solved has turned sentiment around for the better,” said Corne van Zeijl, a Den Bosch, Netherlands-based portfolio manager at SNS Asset Management, which oversees about US$56 billion. “You see the fears are diminishing, and that is what drives the markets.”
EU nations are working on a contingency rescue plan for Greece to be funded by its member governments, according to two people briefed by an EU official. The briefing backs up comments made last week by German lawmakers who said the EU was developing a proposal to offer Greece about 25 billion euros (US$34 billion) in emergency aid.
Greek Prime Minister George Papandreou this week announced 4.8 billion euros of additional measures to reduce the euro region’s biggest deficit, including higher tobacco, alcohol and sales taxes and a cut in holiday payments to civil servants.
They are the second additional actions adopted since Greece presented its original deficit-cutting plan to the European Commission in January and aim to ensure that the country makes good on its pledge to trim a deficit of 12.7 percent of GDP to 8.7 percent this year.
Greek banks rallied as the ASE Index surged 8.8 percent.
National Bank of Greece, the nation’s biggest lender, increased 13 percent. EFG Eurobank Ergasias, the second-largest, rallied 11 percent.
National benchmark indexes rose in all 18 western European markets, except Iceland. Germany’s DAX advanced 5 percent, France’s CAC 40 soared 5.4 percent and the UK’s FTSE 100 increased 4.6 percent.
“It remains clear to us that in isolation equities are in decent shape but that sovereign risk will continue to periodically dampen performance as far as the eye can see,” Deutsche Bank AG strategist Gareth Evans wrote in a report this week. “If sovereign risk is not as high as we fear then there is little to stop the European equity market from adding to last year’s gains. The global economy still looks to be recovering.”
European manufacturing grew for a fifth month last month as reviving global demand boosted orders, London-based Markit Economics said on Monday. In the US, manufacturing expanded for a seventh consecutive month, according to the Institute for Supply Management.
Basic-resource producers were the best performing among 19 industry groups in the STOXX 600. Rio Tinto, the world’s third-biggest mining company, gained 10 percent while Xstrata advanced 15 percent. Copper rose in London for a third week in four.
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