European Stocks Climb as Leaders Boost Efforts to Contain Crisis

By Sarah Jones - Nov 28, 2011 6:10 PM GMT+0700

European stocks surged, rebounding from their biggest selloff in two months, amid speculation policy makers are intensifying efforts to contain the debt crisis. U.S. index futures and Asian shares also rallied.

Banks gained after draft guidelines showed Europe’s rescue fund may insure as much as 30 percent of sovereign bonds. Dexia SA and KBC Groep NV (KBC) advanced as Belgium taps bond markets today after its first credit-rating cut in almost 13 years. Mining and energy companies climbed with commodities after U.S. holiday sales rose to a record in the world’s largest economy.

The benchmark Stoxx Europe 600 Index gained 2.7 percent to 227.49 at 11:07 a.m. in London, its biggest advance in a month. Contracts on the Standard & Poor’s 500 Index expiring next month jumped 2.8 percent and the MSCI Asia Pacific Index increased 2.2 percent.

“European (SXXP) leaders have been pushed into a position that they have to do something,” said Mike Lenhoff, London-based chief strategist at Brewin Dolphin Securities Ltd., which oversees $39 billion. “We are getting to a point where policy makers are now responding. The message from the market is clear: get your act together or we are going to destroy you.”

Stocks sank around the world last week, sending benchmark indexes from the U.S. to Europe down by more than 4 percent, as borrowing costs surged in Italy amid concern that euro-area leaders are struggling to stop the debt crisis from spreading to the region’s larger economies. Global equities have lost about $4.6 trillion of their value this month.

European Treaty Changes

The euro climbed as German Finance Minister Wolfgang Schaeuble urged fast-track treaty changes to tighten budget discipline and as speculation mounted that policy makers are planning to provide more aid for Italy.

Schaeuble said in an interview with ARD television in Berlin yesterday that treaty change is necessary to give veto power over member states’ budgets to the European Commission.

Welt am Sonntag reported that the euro area’s two biggest economies plan for member states to commit to greater fiscal discipline without waiting to change European Union treaties. The newspaper did not say where it got the information.

Separately, La Stampa reported that the International Monetary Fund is preparing a 600-billion euro ($804 billion) loan for Italy in case the sovereign-debt crisis worsens, without saying where it got the information.

An IMF official today said the Washington-based lender is not in talks with Italy about a loan program.

“There are so many rumors flying around, so many things that are being presented as a done deal, which are simply not even on the table,” said Bill Blain, a strategist a Newedge Group on Bloomberg Television in London. “They leave more questions than they possibly answer. It illustrates the fervid nature of the market that is on a knife edge at the moment.”

Bank Shares Jump

A gauge of bank shares rallied more than 4 percent, its biggest advance in a month, as borrowing costs fell in Spain and Italy before euro-area finance ministers meet in Brussels on Nov. 29 as governments bid to regain the confidence of financial markets.

The European Financial Stability Facility may insure the bonds of debt-stricken countries with guarantees of 20 percent to 30 percent of each issue, depending on financial markets, according to EFSF guidelines that finance ministers will discuss this week.

BNP Paribas (BNP) SA surged 8.5 percent to 28.04 euros as the Financial Times reported the bank may plan to sell a portfolio of more than 50 private-equity fund interests for $700 million.

Commerzbank Shares Jump

Commerzbank AG (CBK) advanced 5.6 percent to 1.33 euros as Financial Times Deutschland reported that the lender is planning to repurchase so-called hybrid bonds and pay holders with new shares at it seeks ways to boost capital and reduce risk.

Bank of Ireland Plc surged 10 percent to 8.6 euro cents after the Dublin-based lender agreed to a sell a portfolio of loans to Sumitomo Mitsui Banking Corp., raising 470 million euros. The bank said it continues to make “good progress” with the sale of other loan portfolios.

Dexia and KBC, Belgium’s biggest bank (DEXB) and insurer, soared 12 percent to 41.5 euro cents and 13 percent to 8.87 euros respectively, after a credit downgrade prompted six parties involved in coalition talks to reach an agreement to reduce the budget deficit.

The Treasury in Brussels aims to sell as much as 2 billion euros of four different bonds today with maturities ranging from 7 years to 30 years. It’s the first debt sale since S&P lowered the country’s credit rating one step to AA with a negative outlook on Nov. 25. Coalition talks produced a budget agreement less than 24 hours later.

BHP Billiton Gains

BHP Billiton Ltd. (BHP) advanced 3.4 percent to 1,819.5 pence and Total SA (FP) rose 3 percent to 36.76 euros, leading a rally in mining and energy companies, as copper led base metals higher in London and crude oil climbed in New York.

Commodity prices advanced after U.S. retail sales over Thanksgiving weekend increased 16 percent to a record of $52.4 billion. Crude oil also advanced on speculation that sanctions against Syria will threaten Middle East stability.

Rio Tinto Group also rose after the world’s second-largest mining company (RIO) said it expects to increase capital spending 17 percent next year. The company also raised its iron-ore target to meet demand from China. The shares rallied 3.5 percent to 3,137.5 pence.

Elsewhere, Thomas Cook Group Plc (TCG) soared 35 percent to 24.27 pence after its banks agreed to provide a 200 million-pound ($312 million) loan, giving Europe’s second-largest tour operator time to reorganize its business.

Rolls-Royce, Sarasin

Rolls-Royce Holdings Plc increased 2.2 percent to 693 pence after the company signed a contract with Deutsche Bank AG (DBK) to lower the risk on its 3 billion pounds in pension liabilities.

Bank Sarasin & Cie. AG dropped 15 percent to 29.05 Swiss francs after Safra Group agreed to buy Rabobank Groep NV’s controlling stake in the Swiss firm for more than 1 billion francs ($1.1 billion) to expand private banking in Europe, the Middle East and Asia. Some investors had expected a higher offer from Julius Baer Group Ltd.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net