Europe shares extend rally as Sarkozy, Merkel meet

Europe shares extend rally as Sarkozy, Merkel meet

Paris: European stocks rose early on Monday, adding to last week’s 8.5% jump, on growing hopes of a sweeping solution to the euro zone debt crisis as French President Nicolas Sarkozy and German Chancellor Angela Merkel meet ahead of a key summit.

Italy’s move to unveil a fresh €30 billion package of austerity measures also eased tensions surrounding the country’s finances and sparked a rally in Italian shares, while Italian 10-year bond yields dropped to 6.5%.

Intesa SanPaolo was up 3.9%, UniCredit up 4%, and Fiat up 1.5%.

The euro zone’s blue chip Euro STOXX 50 index was up 0.9% at 2,363.17 points.

Kepler Capital Markets trader Patrice Perois said the market looked ripe for a pull-back after its best weekly gain in three years.

“There are still significant differences between Sarkozy and Merkel, so we’re in for a volatile week, and the risk is that any kind of disappointment could trigger a pull-back," he said.

“But the medium-term looks relatively positive. The Italian government is really regaining credibility, and that’s very important to restore confidence."

Shares in financial institutions led the gains, with ING Groep up 3.6%, BNP Paribas up 4.7% and BBVA up 2.3%.

The STOXX euro zone banking index has surged 23% since tumbling to a near-three week low in late November.

Meeting in Paris on Monday ahead of a key European Union summit later in the week, Sarkozy and Merkel are under pressure to iron out their differences on how to centralise control of euro zone budgets to resolve the region’s debt crisis.

The two leaders, who are due to meet at 6:00pm, on Monday and are expected to hold a news conference afterwards, will try to reach common ground on measures to boost coercive budget discipline in the euro zone, likely via EU treaty change, which they want all 27 EU leaders to approve at Friday’s summit.

Around Europe, UK’s FTSE 100 index was up 0.1%, Germany’s DAX index up 0.4%, and France’s CAC 40 up 0.9%.

Investors shunned defensive shares such as big pharmaceutical groups, with Novartis down 0.7% and AstraZeneca down 0.6%.

German business software maker SAP fell 1.8% after launching a $3.4 billion takeover offer for SuccessFactors, seen as an expensive price tag for the U.S. software company.

“The acquisition is way too expensive. Even if you take into account 2013 yields, the price-to-profit ratio is 165," said analyst Heino Ruland at Ruland Research. “This reminds me of the internet bubble of more than a decade ago".