European Stocks Climb as Bank Rally Overshadows Economy Concern

By Adria Cimino and Michael Patterson
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Oct. 1 (Bloomberg) -- European stocks posted their first back-to-back gains in a month as banks jumped on speculation lawmakers will pass a $700 billion rescue plan, overshadowing a report showing U.S. manufacturing contracted more than forecast.

Barclays Plc, the U.K.'s third-largest bank, climbed 4.4 percent and UBS AG rose 6.7 percent as the Senate set a vote for tonight on the bailout bill. ArcelorMittal dropped 4.8 percent after the Institute for Supply Management said manufacturing contracted in September at the fastest pace since the last U.S. recession. Daimler AG and Porsche SE fell more than 8 percent on forecasts that car markets will weaken.

``It's certainly good if the package comes through,'' said Bernhard Maeder, who oversees the $793 million Credit Suisse Equity Fund at Credit Suisse Asset Management in Zurich. ``We have to instill trust.''

The Dow Jones Stoxx 600 Index gained 0.7 percent to 257.75, bringing its two-day advance to 2.5 percent. The gauge fell from its highest level of the day after the ISM report renewed concern the bank bailout won't avert recessions in the U.S. and Europe.

National benchmark indexes climbed in 11 of the 18 western European markets. The U.K.'s FTSE 100 rose 1.2 percent and France's CAC 40 added 0.6 percent. Germany's DAX fell 0.4 percent.

The Senate version of the bill temporarily raises Federal Deposit Insurance Corp. coverage for bank deposits to $250,000 per account from $100,000, according to a text of the measure posted on the Web site of the Senate Banking Committee.

Senate Bill

The Senate is expected to pass the measure, with most Democrats and Republicans behind it. There's also increased optimism the House will go along, as pressure mounts on lawmakers to help restore confidence in the banking system.

The MSCI World Index of 23 developed markets sank 7 percent on Sept. 29 after the House of Representatives voted against the proposal to give the Treasury broad authority to buy troubled assets from financial companies.

``We're optimistic the government plan will be adopted by the end of the week,'' said Francois Savary, a strategist at Reyl & Cie in Geneva.

Barclays jumped 4.4 percent to 341 pence.

UBS, the European bank with the biggest losses from the credit crisis, climbed 6.7 percent to 19.7 francs. The Swiss lender plans to eliminate about 1,900 jobs in its investment banking, equities, and fixed income units, two people with knowledge of the matter said.

HBOS, Lloyds

HBOS, the British mortgage lender that agreed to be bought by Lloyds TSB Group Plc in an all-share deal, surged 24 percent to 148.1 pence after Prime Minister Gordon Brown and at least two investors backed the takeover.

The stock had fallen 38 percent in the three days through yesterday amid speculation the share-swap may not go ahead on the terms set on Sept. 17 as financial-market turmoil trimmed the value of the Edinburgh-based lender. Lloyds jumped 10 percent to 250 pence.

UniCredit SpA climbed 11 percent to 2.89 euros. The Italian bank that tumbled 24 percent in the previous three days rallied after the country's securities-market regulator banned short sales of banking and insurance stocks.

Swisscom AG gained 2.4 percent to 339.5 francs. Credit Suisse Group AG upgraded the largest Swiss phone company to ``outperform'' from ``neutral,'' saying second-quarter earnings have increased confidence the full-year forecast can be achieved.

ArcelorMittal dropped 4.8 percent to 33.43 euros, and Hochtief AG, a German builder, slipped 3.6 percent to 32.28 euros.

`Economic Recession'

The ISM's factory index declined to 43.5, the lowest level since October 2001 and less than economists anticipated, the Tempe, Arizona-based group reported today. A reading of 50 is the dividing line between expansion and contraction.

``The ISM is at levels of an economic recession,'' said Alberto Espelosin, who helps manage the equivalent of $7.7 billion at Zaragoza, Spain-based Ibercaja Gestion. ``There will clearly be earnings downgrades from industrial companies.''

Porsche sank 8.5 percent to 69.36 euros. The maker of the 911 sports car said turbulence in global financial markets makes predicting earnings for 2009 ``difficult.'' The company reported revenue in the 12 months through July 31 of 7.46 billion euros, without giving a year-earlier figure.

Daimler lost 8.6 percent to 32.375 euros. The world's second-largest luxury car maker said markets have become more difficult since it lowered the earnings outlook in July.

PSA Peugeot Citroen slid 3.6 percent to 25.43 euros. Europe's second-largest carmaker declined to reiterate its 5 percent growth target for full-year vehicle sales. Peugeot brand chief Jean-Philippe Collin refused to discuss the delivery- increase goal at an investor conference in Paris.

The Stoxx 600 Automobiles & Parts Index sank 4.8 percent, its biggest drop since July and the steepest decline on the broader, pan-European index.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net.