London: European shares posted their biggest daily rise in more than 17 months on Monday after European central banks started to buy eurozone government bonds under a $1 trillion rescue package.
The pan-European FTSEurofirst 300 index of top shares surged 7.4% to close at 1,038.91 points --the index’s biggest one-day percentage gain since 24 November 2008 -- while volumes were more than two and a half times the index’s 90-day average volume.
Stocks bounced back after tumbling 8.9% last week on worries that Greece’s debt crisis would spread to other eurozone countries.
Financial stocks were the most spectacular risers, with the STOXX Europe 600 banking index jumping 14% following a 14% drop last week.
BNP Paribas, Banco Santander, BBVA, Societe Generale and UniCredit rose between 20.9 and 23.9%.
“Given the amount of money that is being talked about, you can prop up markets for a certain period of time,” said Andy Lynch, fund manager at Schroders.
“The liquidity questions have been addressed and today is about short-covering. But the big picture is whether the individual countries are going to have the discipline to sustain the spending cuts needed not just over three months, but over five to six years.”
A rescue package was hammered out by European Union finance ministers, central bankers and the International Monetary Fund (IMF) in weekend negotiations.
Eurozone central banks began buying government bonds and the ECB said it would also re-start dollar lending operations and bring back some of the emergency liquidity measures it had started to phase out.
Insurers were among other stocks to strongly gain, with AXA and ING Groep up 21.9 and 24.6% respectively.
Index heavyweight BP was among the small number of losers, falling 0.9% to its lowest close since October. The company said an oil spill in the Gulf of Mexico had cost it $350 million so far, suggesting the final clean-up bill could be much higher than many analysts have predicted.
However, other energy stocks were in demand as crude prices gained, helped by a weaker dollar.
BG Group, Royal Dutch Shell, Repsol and Total rose between 3.6 and 11.9%.
Across Europe, Germany’s DAX rose 5.3% and France’s CAC 40 gained 9.7%.
Some of the countries that stood most to gain from the emergency package saw their shares surge. Spain’s IBEX gained 14.4%, Portugal’s PSI 20 rose 10.7% and Italy’s benchmark gained 11.3%. Britain’s FTSE 100 index rose 5.2%. Like other countries outside the euro, Britain is less affected by the eurozone debt crisis and the aid package. However, it continued to suffer from political uncertainty following last week’s inconclusive general election. Prime Minister Gordon Brown said he would step aside to give his Labour Party a better chance in talks to form a government with the Liberal Democrats, who are already in coalition talks with the Conservative Party..
The Bank of England kept interest rates at 0.5% and made no change to stimulus measures designed to nurse the economy back to health.
Wall Street was higher around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were up between 3.8 and 4.2%.