London: European equities extended gains in morning trade on Thursday, with banking shares rising further after European Commission President Jose Manuel Barroso said policymakers were proposing co-ordinated action to recapitalise the region’s banks.
Banking shares had spiked in the previous session after European finance ministers agreed to safeguard banks and as German Chancellor Angela Merkel urged a quick decision on bank capitalisation in Europe, saying her government was ready to capitalise its banks if needed.
The STOXX Europe 600 banking index rose 3.3% but is still down about 30% this year on concerns about the sector’s exposure to debt-stricken countries such as Greece, which could default on its debt obligations.
“Significant talk of bank recapitalisation is certainly the driving factor behind positive sentiment,” said Keith Bowman, equity analyst at Hargreaves Lansdown.
“But there is still a lot of uncertainty. Speed is of the essence and that would make a difference. If we see another week or so go by without some significant step forward, that is likely to inject nerves back into the markets.”
Analysts said European policymakers had started to realise the significance of urgent actions to resolve the debt crisis, which has the potential to spark a banking crisis and push the global economy into recession.
The European Banking Authority said it was reviewing capital buffers held by banks but was not announcing a new round of stress tests for lenders.
Crisis-stricken Dexia rose 1.9% after hitting record lows this week, as a pledge by Belgium and France to guarantee its financing improved sentiment. Dexia’s board is due to meet in Paris on Saturday to vote on a break-up plan.
At 0835 GMT, the FTSEurofirst 300 index of top European shares was up 1.7% at 932.18 points after surging 3.3% in the previous session.