European Stocks Rise, Led by Banks; DSG, ArcelorMittal Advance

By Sarah Thompson and Jakob Lindstroem

July 9 (Bloomberg) -- European stocks rallied the most in two months on speculation losses at financial companies will ease and commodities will fall, reducing inflation and pressure on profit margins.

Barclays Plc, the U.K.'s fourth-biggest bank, and Credit Suisse Group AG advanced after JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said buyers are returning to some types of mortgage products. Daimler AG and DSG International Plc climbed as crude traded near a two-week low, while ArcelorMittal led metal producers higher after Alcoa Inc.'s profit topped analysts' estimates.

The Dow Jones Stoxx 600 Index added 1.8 percent to 283.90, the steepest gain since May 2 and paring this year's drop to 22 percent. Bank stocks, which have led a rout that erased more than $11 trillion from global equities this year, climbed the most since April today in Europe. The U.K.'s FTSE 100 Index jumped 1.6 percent, after briefly entering a bear market yesterday.

``Bear markets tend to overdo the negativity,'' said Alan Beaney, London-based head of investments at Principal Investment Management Ltd., which oversees about $2 billion. ``We are getting to the stage today where we think we should be reinvesting.'' He said he is ``overweight'' banks.

Record oil prices, rising inflation and credit-related losses topping $400 billion have pushed equity markets in Japan, China, Hong Kong, Germany and France down at least 20 percent, the common definition of a bear market.

National Markets

National indexes advanced in all 18 western European markets today. Germany's DAX added 1.3 percent, while France's CAC 40 increased 1.5 percent. Nokia Oyj jumped to a two-week high, while Barratt Developments Plc led a rebound by U.K. homebuilders.

Barclays rose 5.1 percent to 293.25 pence. Credit Suisse, the second-largest Swiss bank, gained 4.1 percent to 43.92 francs.

U.S. stocks yesterday rallied the most in a month after JPMorgan's Dimon said the credit crisis will ease, oil posted its biggest drop since March and Federal Reserve Chairman Ben S. Bernanke said the central bank may extend securities dealers' access to direct loans into 2009.

``I do think that the capital side of the crisis will ease,'' Dimon said yesterday.

Dimon also said he supports letting Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, make more home loans to add capital to the market.

Alliance & Leicester

Alliance & Leicester Plc, the second-worst performing U.K. bank stock this year, added 8.4 percent to 232.75 pence after naming Royal Bank of Scotland Group Plc's Alan Gillespie as chairman.

The appointment of Gillespie, who worked at Goldman Sachs Group Inc. for 14 years before joining RBS, may signal that the bank is looking for a buyer, Oriel Securities Ltd. said.

Daimler, the world's second-largest luxury carmaker, added 1.6 percent to 39.35 euros. DSG International advanced 6.9 percent to 38.75 pence. Metro AG, Germany's biggest retailer, rose 2.5 percent to 41.18 euros.

Oil traded at $135.55 today, having dropped $5.33 a barrel, or 3.8 percent, to $136.04 yesterday.

ArcelorMittal, the world's largest steelmaker, added 4.5 percent to 55.71 euros. BHP Billiton Ltd., the biggest mining company, increased 3.2 percent to 1,710 pence.

Alcoa's CEO Klaus Kleinfeld, who took over in May, boosted aluminum prices in the quarter 6.2 percent to an average $3,058 a ton. The increase helped the world's third-largest aluminum producer post profit excluding certain items of 71 cents a share, topping the 65-cent average estimate of 17 analysts in a Bloomberg survey.

`Strong' Outlook

Nokia advanced 2.6 percent to 16.11 euros. Dresdner Kleinwort raised its recommendation for the world's largest mobile-phone maker to ``buy'' from ``add.''

``The outlook into the second half looks strong, even in a weakening handset market, on the back of numerous new product launches,'' London-based analyst Janardan Menon wrote to clients. ``A high dividend yield and the share buyback program increase the stock's appeal.''

Taylor Nelson Sofres Plc climbed 11 percent to 274.5 pence. WPP Group Plc, the world's second-largest advertising company, made a hostile bid of 1.08 billion pounds ($2.13 billion) for Taylor Nelson as it seeks to combine the market researcher with its Kantar unit. WPP added 1.2 percent to 469.5 pence.

Barratt soared 38 percent to 54 pence as investors who had shorted the U.K. homebuilder's stock closed their positions and rival Redrow Plc said lenders were ``supportive'' of new loan terms.

`Short Squeeze'

Barratt is in talks with banks to refinance part of its 1.7 billion-pound debt to avoid potential breaches of its loan conditions. The company is due to update the market on the talks tomorrow.

The shares are benefiting from ``a combination of a short squeeze ahead of tomorrow's announcement and optimism following Redrow's news that covenants are not a problem,'' Tim Hughes, head of sales trading at IG Index in London, said via e-mail.

In a short sale, speculators sell borrowed stock in anticipation the price will drop, allowing them to buy back the shares at a cheaper value and pocket the difference when paying back the loan.

Redrow climbed 3.9 percent to 100 pence.

``Discussions with lenders to date have been constructive and supportive,'' Redrow CEO Neil Fitzsimmons said.

Nordex AG dropped 16 percent to 22.77 euros, the steepest loss in more than two years. The German windmill maker that's expanding abroad cut its annual earnings forecast.

To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.