London: European shares rose on Tuesday as a relief rally sparked by EU leaders’ crisis-fighting agreement continued and investors bet on further policy action after weak economic data showed the global economy was in need of further stimulus.
By 1:00pm, the FTSEurofirst 300 was up 4.67 points, or 0.5% at 1,039.99 points, adding to a 4.2% jump since Friday, when EU leaders revealed an agreement, which, among other measures, allowed the euro zone bailout fund to inject cash into struggling banks.
Bank stocks advanced, with UK-listed Barclays , reversing an opening drop of more than 3% to rally 1.7% as the interest rate-rigging scandal claimed the scalp of chief executive Bob Diamond.
Analysts at Liberum said one of the key overhangs for the stock had been eliminated and Barclays now looked very cheap versus peers Royal Bank of Scotland and Lloyds Banking Group.
Beaten down basic resource stocks were higher too after weakening manufacturing data in the US on Monday and spiralling unemployment in Spain also reinforced views that politicians will be forced to act more quickly than expected.
“There has been sheer relief that there was some form of compromise from Merkel and that the entire EMU project hadn’t fallen apart,” said Marcus Ashworth, Head of Fixed Income at Espirito Santo.
“Furthermore the weakness of economic data is pointing towards more stimulus from central banks with both European Central Bank and Bank of England expected to be aggressive on Thursday,” he said.
A recent Reuters survey, taken ahead of last Thursday’s summit of European leaders, suggested the European Central Bank would cut interest rates to a new record low.
“With the EU Commission now having delivered a degree of reform progress, ECB President Draghi should have all the cover he needs to deliver a 50-basis-point rate-cut fillip as we expect at the Bank’s Thursday policy meeting,” Nomura analysts said.
How much further the index will rally will depend on how aggressive both politicians and investors feel they can be with so much uncertainty swirling around global growth.
Those worries were reflected in the share price of Suez Environment, which was the top faller in Europe, down 3% and adding to previous sharp declines after HSBC cut its rating on the firm “neutral” following the French water and waste group’s 2012 outlook warning on Friday.
Indexes were also reaching flexion points after a bullish start to the second-half 2012, which in turn came on the back of a weak second-quarter performance when it fell 8.6%.
The euro zone’s blue chip Euro STOXX 50 index, which has jumped 6.2% in the two last sessions, will face strong resistance at 2,319 points, which represents its 200-day moving average, and at 2,330.79 points, representing the 50% retracement of its March-June slump.