European Stocks Gain Most Since 2007 on Government Bank Rescues

By Daniela Silberstein

Oct. 18 (Bloomberg) -- European stocks climbed this week, sending the Dow Jones Stoxx 600 Index to its biggest gain since March 2007, after governments announced bank rescue packages to shore up the financial system and restore investor confidence.

Credit Suisse Group AG posted a record weekly advance and Barclays Plc climbed 6.5 percent as European leaders agreed to guarantee new bank debt and money-market rates declined. Ericsson AB rallied 12 percent as its mobile-phone venture with Sony Corp. reported a smaller-than-estimated loss.

The Stoxx 600 added 4.5 percent to 214.27. The gauge jumped 13 percent in the first two days this week, the biggest two-day surge on record, before posting the steepest two-day tumble since 1987 after reports showed a drop in U.S. retail sales and the highest U.K. unemployment since November 2006.

The benchmark index for European equities is down 41 percent this year as credit losses and asset writedowns at financial firms worldwide reached $660 billion, pushing the global economy toward a recession.

``The government measures were a huge progress to win back trust,'' said Erwin Brunner, who oversees the equivalent of $442 million as executive officer at BrunnerInvest AG in Zurich. ``The slump in the U.S. remains the dominant factor and Europe follows. I can't see how the economy can grow given the financial problems, we will go into a recession.''

The U.S. said it would invest $250 billion in the nation's banks and urged lenders to use the funds to spur economic growth. The injection came after France, Germany, Spain, the Netherlands and Austria pledged 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders.

Mining Companies

Rio Tinto Group Plc and Xstrata Plc led a slump among commodity producers, limiting gains in the Stoxx 600, on concern that slowing economic growth will curb demand for raw materials.

National benchmark indexes rose in 11 of the 18 western European markets. Germany's DAX Index increased 5.2 percent. France's CAC 40 advanced 4.8 percent, while the U.K.'s FTSE 100 added 3.3 percent.

The cost of borrowing dollars in London fell for the first week since July as central banks around the world pumped unprecedented amounts of cash into money markets. The London interbank offered rate, or Libor, for three-month loans in dollars retreated for five straight days.

The VStoxx index, which measures the cost of using options as insurance against declines in the Dow Jones Euro Stoxx 50 Index, retreated 4.8 percent, the first weekly drop since August.

Swiss Banks

Credit Suisse rallied 42 percent. The second-biggest Swiss bank raised 10 billion francs ($8.8 billion) from investors including Qatar and Tel Aviv-based Koor Industries Ltd.

UBS AG advanced 6.8 percent after the Swiss National Bank said it will set up a new fund with as much as $54 billion in loans and the government will inject 6 billion francs of capital into the country's largest bank.

Barclays increased 6.5 percent. The U.K.'s second-biggest bank said it plans to sell more than 6.5 billion pounds ($11.2 billion) of shares to private investors without asking the government for help.

The U.K. government said it will spend 37 billion pounds to bail out Royal Bank of Scotland Group Plc, HBOS Plc and Lloyds TSB Group Plc.

Deutsche Bank AG, Germany's largest, rose 4.4 percent. The German government's 500 billion-euro bank rescue plan cleared both houses of parliament after Chancellor Angela Merkel headed off a revolt by state premiers over their financial contribution to the package. President Horst Koehler, who signed the bill into law, said the steps are ``appropriate.''

Steepest Gain

Hypo Real Estate Holding AG, the German commercial-property lender that had to be bailed out, jumped 49 percent, the steepest advance in the Stoxx 600 this week.

Bank shares in the Stoxx 600 still lost 1.2 percent as a group. Fortis sank 84 percent, the worst performance in the measure, as it resumed trading following a six-day suspension. The financial-services firm bailed out by three governments will receive 14.4 billion euros from the sale of its Dutch and Belgian insurance and banking businesses.

Ericsson rallied 12 percent. The net loss at Sony Ericsson Mobile Communications Ltd. was 25 million euros, compared with a 267 million-euro profit a year earlier. Analysts in an SME Direkt survey predicted a loss of 141 million euros, according to the median of 22 estimates.

Nokia Oyj rose 7.3 percent. The world's biggest maker of mobile phones said it aims to win back market share after third- quarter profit fell 30 percent on competition from BlackBerry and Samsung models.

China Car Sales

Daimler AG rallied 14 percent after the second-largest maker of luxury cars boosted nine-month revenue in China 54 percent on demand for Mercedes-Benz S-Class sedans.

Basic-resources shares were the worst performers in the Stoxx 600, falling 5.4 percent as a group. Rio Tinto, the third- biggest mining company, declined 7.2 percent. BHP Billiton Ltd., the largest, dropped 6.2 percent. Xstrata, the fourth-biggest copper producer, plunged 22 percent.

Copper, lead, tin and nickel prices declined for a third straight week on the London Metals Exchange as concern mounted that demand for commodities will be hurt by an economic slowdown. Crude oil also dropped, bringing the slump from its July record to almost 51 percent.

To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.