Buoyant banking sector lifts European equities

Eurostoxx 50: 2,971.48 (+20.52) Frankfurt DAX: 7,215.11 (+39.80) Paris CAC: 4,048.16 (+6.42): EUROPEAN STOCKS advanced yesterday, rebounding from earlier losses, as banks gained after Commerzbank and Intesa Sanpaolo announced capital increases and German factory orders rose more than forecast.

The Stoxx Europe 600 Index gained 0.3 per cent to 281.6 at the close in London, having earlier dropped as much as 0.4 per cent.

“I would expect that there will be some continued pressure for recapitalisation in the European banking sector going forward,” said Valentijn van Nieuwenhuijzen, head of tactical asset allocation at ING Investment Management, which oversees $518 billion.

“It does help to take out the vulnerability from the European financial sector.”

The European Central Bank will raise borrowing costs today for the first time in almost three years as policy makers try to contain inflation, according to all 57 economists polled by Bloomberg.

“The long period of loose global monetary policy that started with the Lehman bankruptcy is coming to an end, but in a far less orderly and synchronised way than it started,” a team of strategists at Exane BNP Paribas, including David Finch in London, wrote in a report yesterday.

ThyssenKrupp rose 2.5 per cent to €30.12 as Germany’s biggest steelmaker was also raised to “overweight” from “neutral” at HSBC. BASF, the world’s biggest chemical company, rose 1.9 per cent to €63.43, its 11th straight advance.

Commerzbank surged 1.9 per cent to €5.71. Germany’s second-largest lender plans a capital increase of €8.25 billion ($11.8 billion). Intesa soared 5.4 per cent to €2.24, its biggest gain in more than two months.

Marks and Spencer surged 6.3 per cent to 361.5p, its largest gain in two years, after saying that its gross margin will rise as much as 25 basis points in 2012.Next, the owner of more than 500 clothes shops in the UK and Ireland, rose 3.1 per cent to 2,094p.

Pirelli jumped 4.3 per cent to €6.65, its fourth straight advance. Europe’s third-largest tyremaker was upgraded to “overweight” from “underweight” at Morgan Stanley.

Electricite de France slumped 3.1 per cent to €27.56 as investors speculated that power price controls and higher costs after Japan’s atomic crisis will cut profit at the world’s largest operator of nuclear reactors. – (Bloomberg)