European Stocks Rise on Bank Rescue Speculation; Dexia Advances

By Adria Cimino

Sept. 30 (Bloomberg) -- European stocks rebounded from their steepest drop in eight months after U.S. lawmakers said they plan to salvage a $700 billion bank-rescue bill.

Standard Chartered Plc gained 8 percent and HSBC Holdings Plc added 4.2 percent as congressional leaders said a bailout deal would eventually pass after its rejection yesterday sparked a 7 percent drop in the MSCI World Index. Dexia SA climbed 6.1 percent after the largest lender to local governments got a 6.4 billion-euro ($9.2 billion) state-backed bailout. Anglo Irish Bank Corp. Plc rallied 67 percent as the government guaranteed the deposits and borrowings of six Irish lenders.

``To restore confidence, we have to restore solvency of financial establishments,'' said Benoit de Broissia, an equity analyst at KBL Richelieu Gestion in Paris, which oversees $6.2 billion. ``There are hopes it will be re-voted.''

The Dow Jones Stoxx 600 Index increased 1.8 percent to 256.05 at the close as Xstrata Plc and Norsk Hydro ASA led a rally in raw-materials companies, trimming the gauge's loss for the third quarter to 11 percent. The benchmark yesterday retreated 5.5 percent, the steepest decline since Jan. 21.

The market's gains were limited earlier in the day as the British Bankers' Association said the cost of borrowing in dollars overnight jumped the most on record. The London interbank offered rate, or Libor, rose 4.31 percentage points to 6.88 percent, an all-time high, the BBA said today. It was at 2.95 percent a week ago.

The MSCI World, a gauge of 23 developed markets, posted the steepest loss since October 1987 yesterday after the House of Representatives voted 228 to 205 against the measure to give the Treasury broad authority to buy troubled assets from financial companies.

Dodd, Obama

Standard Chartered, the U.K. bank that gets most of its profit from Asia, gained 8 percent to 1,345 pence. HSBC, Europe's biggest bank, added 4.2 percent to 901 pence.

Christopher Dodd, chairman of the Senate Banking Committee, said senators may deal with the bill as early as tomorrow.

``We don't intend to leave here without the job being done,'' said Dodd, a Connecticut Democrat.

Democratic presidential candidate Barack Obama called for calm after the House vote, saying the plan ``will get done.'' Republican nominee John McCain urged lawmakers to ``go back to the drawing board'' and come up with legislation that will pass.

The Stoxx 600 fell 11 percent in September, the worst monthly slump since January, after Lehman Brothers Holdings Inc. filed for bankruptcy, American International Group Inc. was taken over by the U.S. Treasury and Washington Mutual Inc. was seized by regulators in the biggest U.S. bank failure in history.

Yesterday's decline left the index valued at 10.68 times the earnings of its companies, near the cheapest since at least 2002, data compiled by Bloomberg show.

`Can't Get Much Worse'

``Things can't get much worse,'' said Leonardo Lara, who manages about $150 million at Metagestion SGIIC SA in Madrid. ``I'm optimistic some kind of plan will be passed before the week is out. There are still some attractive sectors out there.''

National benchmarks gained in 14 of the 18 western European markets. The U.K.'s FTSE 100 added 1.7 percent, France's CAC 40 gained 2 percent and Germany's DAX rose 0.4 percent. Ireland's ISEQ Overall Index jumped 7.9 percent as Irish Life & Permanent Plc also rallied.

Dexia climbed 6.1 percent to 7.50 euros after Prime Minister Yves Leterme said Belgium's federal and regional governments, France and the company's largest shareholders will fund the rescue. CEO Axel Miller and Chairman Pierre Richard will leave once replacements are found, the bank said.

Irish Banks

Xstrata, the world's fourth-largest copper producer, gained 8.8 percent to 1,716 pence. Norsk Hydro, Europe's second-biggest aluminum producer, advanced 20 percent to 38.75 kroner. Basic- resources stocks gained more than any of the other 18 industry groups in the Stoxx 600.

The Reuters/Jefferies CRB Index of 19 commodities yesterday plunged 5.9 percent, the biggest drop since 1956, on concern the spreading financial crisis may slash demand for raw materials. The Dow Jones Stoxx 600 Basic Resource Index yesterday was valued at 6.79 times earnings, the cheapest since at least 1999, data compiled by Bloomberg show.

Anglo Irish, Ireland's third-biggest lender, jumped 67 percent to 3.844 euros and Irish Life & Permanent surged 36 percent to 4.85 euros after the stocks yesterday tumbled 46 percent and 38 percent, respectively.

The Irish government said today it will guarantee all deposits, covered bonds, senior debt and dated subordinated debt of four publicly traded banks and two building societies.

Glitnir Bank hf, the Icelandic bank bailed out by the government yesterday, plunged 71 percent to 4.55 kronur as the shares resumed trading in Reykjavik. Byr Savings Bank canceled talks with the lender about a possible merger.

Enterprise Inns

HBOS Plc, the U.K.'s biggest mortgage lender, declined 14 percent to 122.4 pence, widening the gap between its market value and the price that Lloyds TSB Group Plc agreed to pay in a stock swap that may be in doubt.

``HBOS isn't a done deal until Lloyds' shareholders vote for it,'' said Leigh Goodwin, an analyst at Fox-Pitt, Kelton Ltd. in London. Officials at Edinburgh-based HBOS couldn't immediately be reached for comment.

Enterprise Inns Plc, Britain's second-largest pub landlord, climbed 14 percent to 178.5 pence as CEO Ted Tuppen said the company is ``entirely happy'' with its financing structure.

ASML Holding NV, Europe's biggest maker of semiconductor equipment, added 5.9 percent to 12.41 euros after winning five orders for its machines based on a new lithography technology.

Hennes & Mauritz AB sank 9.7 percent to 278 kronor. The region's second-largest clothes retailer reported its weakest profit growth since 2003. Fiscal third-quarter net income climbed 5 percent to 3.33 billion kronor ($490 million).

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