London: European shares rose on Friday, after losses in the previous session, on hopes decisions to resolve the region’s debt crisis would emerge from meetings held by European leaders.
While investors hope European leaders will make progress towards a comprehensive plan to ease the region’s debt crisis at a summit on Sunday, France and Germany said no decision will be made until a second meeting on Wednesday.
Banking stocks were among the best performers on optimism of a plan because of their exposure to sovereign debt, with the STOXX Europe 600 Banks index rising 1.9% after falling 4% on Thursday as doubts grew the summit would go ahead.
“Positive reaction from the market this morning on the hope something will be done at the meetings, but if nothing is resolved soon we will be quickly back down again,” Manoj Ladwa, senior trader at ETX Capital, said.
Standout gainers were Italian banks Unicredit and Intesa Sanpaolo , which both high exposure to debt in Italy - a country also under pressure in the crisis - up 5.1% and 3.9% respectively, partially retracing the sharp falls in the previous session.
Ladwa added that most of the investment he was seeing was by short-term investors, getting in and out of the market on the news flow, rather than long-term fund managers as there were too many uncertainties ahead.
In the latest sign the debt crisis was spreading to other countries, Italian debt yields remained above 6%, and the move up by Italian banks, whose performance have been highly correlated to movements in bonds was seen as short-lived.
“Banks are going up, particularly Italian, only because they had a torrid day yesterday,” said Colin McLean, managing director of SVM Asset Management. “I think people will begin to shut down positions as we go into the weekend.”
“I expect more fund raising to be done by banks and rising yields points to pressures in short-term funding for the sector.”
Adding to the worries the crisis was spreading to larger countries was news by Standard & Poor’s that five European nations, including France, will likely have their credit ratings lowered if the region slips into recession and government borrowings increase.
By 0829 GMT, the pan-European FTSEurofirst 300 .FTEU3 index of top shares was up 0.7% at 960.92 points after falling 1.4% in the previous session on doubts about whether Sunday’s summit would go ahead.