London: A tentative recovery in European shares looked set to last a second day on Monday, as recently beaten-down banking stocks took the lead on hopes policymakers were putting together a plan to ease the region’s debt crisis.
Gains were extended around midday as traders cited a report which said that the European Central Bank may consider restarting covered bond purchases, but there was no comment from an ECB spokesman about it.
The STOXX Europe 600 Banks index jumped 4.6% to become the top performer, after European officials said they were working on ways to boost the 440 billion-euro European Financial Stability Fund (EFSF) to help tackle the crisis.
“The market is just latching onto hope that authorities will make positive decisions over the next weeks,” said Richard Batty, strategist at Standard Life Investments, which has $245 billion of assets under management.
Italy’s Intesa Sanpaolo which has sold off 37.8% since late July as worries about the debt crisis have shifted focus to Italy, was up 8.1% to become a stand-out riser in Europe on the news.
The bank also got a boost from a media report that said it could avoid tapping the wholesale funding market for the next two years if market conditions worsened.
The Italian FTSE MIB, up 4.4%, was outperforming the other peripheral exchanges, due to the strong performance in banking stocks and also due to a technical rebound as it neared “oversold” territory.
Its 14-day relative strength index was at 31.3 -- 30 or below is considered oversold.
French banks BNP Paribas and Societe Generale were also in the top performers list and gained 8.2% and 7.9% respectively, supported as well by a media report that said France could use a support mechanism set up in 2008 to shore up banks’ capital bases.
“Considering recent French bank funding concerns, though we believe further stress is required before action is taken, we expect France could lead a capital injection across all French banks,” JP Morgan analysts said in a note.
By 4:57pm, the pan-European FTSEurofirst 300 index of top shares was up 2.6% at 904.90 points extending the previous session’s gains on hopes of a coordinated action plan.
The Euro STOXX 50 volatility index , Europe’s main fear gauge, however, was only down 0.7% and is still up 34.8% this month.
The higher the volatility index, the lower investor appetite for risk.
PLAN LACKS DETAIL
Analysts said the gains were only likely to be a relief rally and there was a lack of detail about how the new measures would be achieved.
Ratings agency Standard & Poor’s highlighted another problem by suggesting that any move to increase the rescue fund could spark ratings downgrades.