European shares extend rally on debt plan hopes

European shares extend rally on debt plan hopes

Mining stocks, were the standout performers, with the STOXX Europe 600 Basic Resources index rising 3.5% after China’s manufacturing sector expanded in October boosting hopes demand for metals was still robust.

Trade was choppy as investors pared back gains to bank stocks , which had risen on hopes of progress towards a plan to help ease the region’s debt crisis, on worries about disagreements by policymakers.

But final decisions on a plan, which include recapitalising the banks and leveraging the rescue fund, will not be made until Wednesday and sharp differences remain over the size of losses private holders of Greek government bonds will have to accept.

Greek bank shares dropped 14.9% to be amongst the worst performers on worries that they would be forced to seek state support to recapitalise if there was a deeper markdown on Greek government bonds.

“There is huge event risk over the next few days," said Veronika Pechlaner, a fund manager on the Ashburton European equity fund.

“We had been increasing our weighting in financials, but now at these levels we are watching the situation closely and have the ability to reduce exposure quickly depending on the outcome."