Ban gives relief to markets as buyers return

SHORT-SELLING:THE BAN on short-selling introduced by four euro zone countries served to calm markets yesterday, as all major European indices closed higher following one of the most turbulent weeks on the markets.

The decision by France, Italy, Spain and Belgium to ban the short-selling of some stocks temporarily tempted buyers back into the market, though some market sources criticised the move, arguing that it would serve to highlight specific areas of weakness.

While Britain, the Netherlands and Austria said they saw no need for action, Germany, which introduced a ban last year, said it was advocating a Europe-wide ban on “naked” short-selling, where investors bet on the price of a share falling without owning the stock.

“We are advocating a wide-reaching ban on naked short-selling of stocks, sovereign bonds, and credit default swaps,” said Martin Kotthaus, the German finance ministry spokesman, “Only this way can destructive speculation be countered convincingly.”

Meanwhile, the European Commission urged lawmakers to reach a conclusion on talks on new short-selling rules for the region. The EU’s financial services commissioner Michel Barnier is calling on lawmakers at the European Parliament and national governments to make efforts to conclude negotiations on an EU-wide short-selling law by the end of next month.

“We are now very close to an agreement. Commissioner Barnier would like to call on both co-legislators to make the final step towards a comprehensive compromise so a deal can be reached in September,” commission spokeswoman Chantal Hughes said.

“Recent events on the markets have proven once again how important it is that Europe can act fast and in a co-ordinated fashion. We should give ourselves all the tools to do so.”

National benchmark indexes advanced in every western European market yesterday. The UK’s FTSE gained 3 per cent, Germany’s DAX Index climbed 3.2 per cent while France’s CAC 40 Index rose 3.8 percent. In Dublin the Iseq finished up 3 per cent at 2,520.

The equity markets were boosted by US retail figures, which showed retail sales gained 0.5 per cent in July, their biggest increase in four months, though disappointing GDP data from France and Greece tempered gains.

Bond markets continued to benefit from the ECB bond-buying exercise which commenced on Monday, with the yields on Spanish and Italian falling.

Irish bond yields fared particularly well, maintaining their recent rally. The yield on Irish two-year note yields fell 112 basis points to 9.58 per cent, down from 13.55 per cent a week ago, while the yield on 10 year notes remained below 10 per cent at 9.826.