European Stocks Climb on Bailout Plan; UBS, ING, Total Advance

By Adria Cimino

Oct. 13 (Bloomberg) -- European stocks rallied, with the Dow Jones Stoxx 600 Index rebounding from its worst week on record, as governments in Europe, the U.S. and Asia agreed to support banks.

UBS AG, Deutsche Bank AG and ING Groep NV jumped more than 10 percent after European leaders said they would guarantee new bank debt. Total SA gained 6.7 percent and BHP Billiton Ltd. rose 7.9 percent as oil climbed from a 13-month low and copper advanced from the lowest price in more than two years.

``There's a certain sense of relief,'' said Benoit de Broissia, an equity analyst at KBL Richelieu Gestion in Paris, which oversees $5.5 billion. ``The banking system is the lung of the economy, so it has to be supported.''

The Stoxx 600 advanced 6.7 percent to 218.8 at 3:04 p.m. in London. The index has dropped 40 percent this year as concern that frozen credit markets will trigger a recession erased about $28 trillion in value from global stock markets.

Financial firms have reported $635 billion in losses and writedowns from U.S. mortgage-related investments since the beginning of last year.

Stocks increased after the U.S. Federal Reserve said central banks will offer financial institutions unlimited dollar funds and Europe pledged to guarantee bank debt issues and permit governments to buy stakes and recapitalize some distressed financial companies.

National Markets

National benchmark indexes climbed more than 4 percent in 16 of the 17 western European markets that were open. The U.K.'s FTSE 100 jumped 4.8 percent. Germany's DAX advanced 7.7 percent. France's CAC 40 increased 6.8 percent as Total SA gained.

Iceland suspended stock trading for a third day after the government seized Kaupthing Bank hf, the country's biggest bank.

The cost of protecting bank bonds from default fell after the U.K. pledged 37 billion pounds ($64 billion) for Royal Bank of Scotland Group Plc, HBOS Plc, and Lloyds TSB Group Plc.

Germany will provide as much as 500 billion euros ($681 billion) in loan guarantees and capital to bolster the banking system, the Finance Ministry said.

``The most important signal that the European Union gave to us over the weekend is that it's finally speaking with one voice,'' said Michael Scholz, an equity strategist at WestLB AG in Dusseldorf. ``That's a positive signal for the market participants.''

The euro rose as much as 2 percent against the dollar, the most since Sept. 22. It advanced by as much as 2.1 percent against the yen.

Money-Market Rates Fall

Money-market rates declined after central banks offered unlimited dollar funds. The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.75 percent from 4.82 percent, the British Bankers' Association said today.

The TED spread, the difference between what the U.S. government and banks pay for three-month dollars, narrowed 7 basis points to 457 basis points. The Libor-OIS spread, a gauge of cash scarcity among banks, narrowed 2 basis points to 362 basis points.

``We were on the brink of an implosion,'' said Jacques- Antoine Bretteil, who manages about $312 million at International Capital Gestion in Paris. ``We've avoided the worst, but that doesn't mean all of the problems are over.''

UBS, the European bank hardest hit by subprime-related losses, surged 12 percent to 19.04 francs. Deutsche Bank, Germany's biggest, rallied 10 percent to 34.435 euros. ING, the largest Dutch financial-services provider, gained 17 percent to 12.23 euros.

Banks Upgraded

Goldman Sachs Group Inc. raised its recommendation on European banks to ``neutral'' from ``underweight,'' citing the recent decline in valuations and central bank action to reduce risks for the industry.

Barclays Plc added 6 percent to 220 pence. The U.K.'s second-biggest bank plans to sell more than 6.5 billion pounds ($11 billion) of shares to private investors without turning to the government for help. Barclays won't pay a final dividend for 2008, the company said today.

Royal Bank of Scotland fell 9.8 percent to 64.7 pence, and HBOS dropped 22 percent to 96.5 pence. Lloyds TSB lost 9.7 percent to 171 pence.

In exchange for the bailout, Royal Bank of Scotland and HBOS will cede majority control to the government, give Prime Minister Gordon Brown seats on their boards, the right to fix dividends, and power to set executives' pay.

Societe Generale

Societe Generale SA sank 6 percent to 46.99 euros. The bank that suffered a record trading loss this year declined on concern the company may need to raise 10 billion euros ($13.6 billion) of capital.

Speculation about a ``capital increase is what's hurting the stock,'' said Frederic Boissel, an equity trader at Tradition Financial Services in London. ``We heard a rumor of a loss in structured products and then a rumor of a 10 billion- euro capital increase, which would dilute shares by about 35 percent.''

Societe Generale denied rumors of a need for a capital increase and significant losses in structured products.

The Stoxx 600 closed last week valued at 8.5 times profit of the companies in the index, the lowest level since at least 2002, according to data compiled by Bloomberg. The MSCI World Index traded at 11 times the earnings of its 1,730 companies. That was the cheapest since at least 1995. The S&P 500, the benchmark for American equities, was valued at 17.2 times earnings, the lowest in more than a year, after its steepest weekly retreat since 1933.

Banco Santander

Banco Santander SA added 7.5 percent to 9.75 euros. Spain's largest lender is in talks to buy Sovereign Bancorp Inc., the biggest remaining U.S. savings and loan, in what would be the third acquisition of a troubled lender in three months by the company.

Total, Europe's biggest oil refiner, gained 6.7 percent to 35.40 euros. Royal Dutch Shell Plc, the region's largest energy company, advanced 5.9 percent to 1,380 pence.

Crude for November delivery rose as much as 6.2 percent to $82.52 on the New York Mercantile Exchange.

BHP Billiton, the world's biggest mining company, jumped 7.9 percent to 1,030 pence, while Rio Tinto Group, the third- largest, climbed 9.6 percent to 2,657 pence. Copper on the London Metal Exchange rose from a 33-month low after governments around the world agreed to support their financial systems.

Philips, GDF Suez

Royal Philips Electronics NV lost 7.3 percent to 14.63 euros. Europe's biggest television maker said it will slow down its 5 billion-euro ($6.8 billion) share buyback after third- quarter sales fell short of analysts' estimates.

GDF Suez SA, the owner of Electrabel SA, Belgium's biggest power producer, surged 16 percent to 28.19 euros after Citigroup Inc. said the possibility of electricity-price regulation in the country receded.

``Comments made by the Belgian Prime Minister and members of the government lead us to believe regulation in the country is highly unlikely,'' Citigroup analyst Sofia Savvantidou wrote in a report.

ArcelorMittal gained 16 percent to 25.34 euros. The world's biggest steelmaker rebounded from its 13 percent decline on Oct. 10 as Societe Generale raised its recommendation on the shares to ``buy'' from ``sell.''

``ArcelorMittal's share price has clearly undershot,'' Paris-based Societe Generale analyst Alain William wrote in a research note to investors published today.

TUI AG soared 19 percent to 10.45 euros. The owner of Europe's largest travel company agreed to sell its Hapag-Lloyd shipping unit for more than some analysts had estimated.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.