Europe shares extend rally in holiday-thin trade

Europe shares extend rally in holiday-thin trade

Paris: European stocks rose in early trade on Friday, extending the week’s thin-volume, pre-holiday rally after reassuring US economic data in the previous session gave a short-term fillip to a market still overshadowed by the euro zone debt crisis.

The euro zone’s blue chip Euro STOXX 50 index was up 0.7% at 2,289.93 points, moving above its 50-day moving average, a key resistance level tested over the past two days.

“The macro data from the US is helping us forget about the debt crisis, but that shouldn’t last very long, and there’s still a big risk of getting a few credit downgrades in Europe before the end of the year," a Paris-based trader said.

Banks gained ground, extending their timid Christmas rally after a dismal year, with Banco Santander up 1.1% and BNP Paribas up 1.4%.

A drop in US weekly claims for jobless benefits to a 3-1/2-year low as well as improvement in US consumer sentiment in December boosted US stocks on Thursday, with the S&P 500 just about the turn positive on the year.

Around Europe on Friday, UK’s FTSE 100 index was up 0.4%, Germany’s DAX index up 0.3%, and France’s CAC 40 up 0.9%.

With a few trading sessions left, The FTSEurofirst 300 is poised to end the year down 12%, dragged by fears the escalating debt crisis could lead to massive defaults and push the region’s economy into another recession.

The FTSE 100 is down 7.1% in 2011, the DAX down 15.1% and the CAC 40 down 18.6%, while Spain’s IBEX is down 13.4%, Italy’s FTSE MIB down 25.2% and Greece’s ATG down 53.3%.

Investors were relieved after the passage late on Thursday by Italy’s Senate of a vote of confidence in the government of Prime Minister Mario Monti that put the final seal on an austerity budget aimed at restoring market confidence in the euro zone’s third largest economy.

“The cornerstone of Monti’s plan to reduce the debt is to limit payments in cash to curb tax evasion which, if successfully implemented, could be the turning point for Italy’s finances," Spreadex trader Jordan Lambert said.

“The feeling is that if Monti can continue this progress the market may no longer view Italy as a threat to crumbling the euro and in conjunction with the huge injection of liquidity by the ECB, the bank recapitalizations and the increased transparency of government deficits, we could be witnessing the beginnings of an end to the euro crisis."

Despite attractive equity valuation levels, investors have been reluctant to buy stocks ahead of crucial tests in the bond market in first quarter of 2012. According to the ECB, some €230 billion of bank bonds and 250 to 300 billion in government bonds are falling due during the quarter.