Paris: European stocks were ahead for the third day in a row on Thursday as backing for Greece and a smooth debt auction in Spain soothed investor fears over the faith of the euro zone, while UBS sank after unveiling a $2 billion rogue trade loss.
UBS shares tumbled 8% in big volumes after it said it might post a third-quarter loss due to the rogue trades, dealing a blow to the Swiss lender which had been struggling to rebuild its credibility after years of crises.
“The loss is manageable at the group level, but is obviously not helpful for sentiment and confidence in the bank’s risk management following the near-death experience of 2008-2009,” Espirito Santo Investment Bank analyst Andrew Lim said.
The FTSEurofirst 300 index of top European shares was up 1.8% at 929.86 pointsat 1155 GMT. The benchmark index has gained nearly 6% since touching a two-year low on Tuesday, and trading volumes have been stronger than in previous tentative rallies in the past month, a positive signal.
“We are seeing a pick-up in volumes on option calls, although it is hard to read into the market because of the ‘triple witching´ tomorrow,” Agilis Gestion fund manager Arnaud Scarpaci said.
“A lot of people who have been selling will have to buy back into the expiry, that explains in part the market’s rally.”
Triple witching happens when contracts for stock index futures, stock index options and stock options all expire on the same day, boosting volatility as players close positions.
Late on Wednesday, German and French leaders said they were determined to keep Greece in the euro zone, while Spain was the latest peripheral country to tap markets on Thursday and, although its debt funding costs remain high, the bond auction was well bid at the top of the expected range, in contrast to an Italian auction earlier this week.
RISK ON THE UPSIDE
Investors awaited a flurry of US data later, including the Philadelphia Federal Reserve’s monthly business activity survey. Economists in a Reuters survey forecast a reading of -15.0, versus -30.7 in August.
“A clearer direction for markets could also emerge from today’s data, particularly the US Philly Fed data. A good figure would boost sentiment while a disappointing reading would fuel expectation of bold action from Bernanke,” Scarpaci said.
Banks extended their recovery rally, with BNP Paribas up 6.8% and Deutsche Bank up 4.8%.
But, three years to the day, after Wall Street firm Lehman Brothers declared bankruptcy and sparked a major financial crisis worldwide, European banks are still reeling, with the sector index down 57% from that date.
Europe’s broad STOXX 600 index has lost 19% since then, with France’s CAC 40 down 31%, Germany’s DAX down 13% and Britain’s FTSE 100 down 2.1%.
Wall Street’s S&P 500 is down 5% since Lehman’s collapse, while the MSCI Emerging stock index is up 12.3% and the Shanghai Composite Index up 19.2%.