European equities advance as euro strengthens

WORLD STOCK markets advanced yesterday with European equities recording their strongest four-day rally since 2008 and the euro strengthening after France and Germany renewed their pledge to solve the euro zone’s worsening debt crisis.

Europe’s benchmark Stoxx 600 index advanced 1.7 per cent to 235.94, extending the gauge’s rally over the last four days to 8.5 per cent.

The UK’s FTSE 100 Index gained 1.8 per cent. France’s CAC 40 Index climbed 2.1 per cent, and Germany’s DAX Index jumped 3 per cent. Ireland’s Iseq lagged behind its peers, but still notched up a gain of 1 per cent.

In the US, the Dow Jones industrial average was up 232.88 points, or 2.10 per cent, at 11,336.00. The Standard Poor’s 500 Index was up 27.66 points, or 2.39 per cent, at 1,183.12.

The Nasdaq Composite Index was up 57.55 points, or 2.32 per cent, at 2,536.90.

A Dublin trader said the market is a “hostage to any commentary that comes out” at the moment. It had been expected that stock exchanges would open weaker yesterday following the credit rating downgrades of Spain and Italy last Friday.

However, markets decided to “give credence” to the comments made by German chancellor Angela Merkel and French president Nicolas Sarkozy on Sunday, when they pledged to devise a plan to recapitalise banks and come up with a sustainable answer to Greece by the end of the month.

“All the same, people are nervous as to what’s going to happen,” another Dublin broker said. “They’re trying to get inside politicians’ heads and that’s not a very good place to be . . . Nobody believes deep down that the problems are completely solved, but the market is taking the view that between now and the G20 meeting at the start of next month, there will be a political solution.”

“I believe they will come up with something,” Andy Brough, executive director at Schroder Investment Management in London, said. “What the market wants to see is can we get a position and move forward.”

Some strategists were sceptical due to the lack of detail, and remained downbeat on equities.

“It is a relief rally, not surprising given how bearish the last five or six weeks have been,” said Michael McNaught-Davis, head of international equities at Scottish Widows. “There is still some bitter medicine to be taken. It will be difficult to unwind all this debt without economies falling into recession.”

A move to nationalise Franco-Belgian bank Dexia was seen as an indication governments would step in and keep large lenders from going under. Dexia shares fell 4.7 per cent.

Elsewhere, Greek bank stocks fell 10.4 per cent after the country’s central bank said it had activated a bank rescue fund to save Proton Bank, effectively nationalising the small lender.

Trading volumes were low at 77 per cent of the benchmark index’s 90-day average. US government offices and the bond market were closed for the Columbus Day holiday, which tends to produce lighter-than-usual equities volume on Wall Street, and bring down European volumes.

Some strategists were also cautious ahead of a batch of US earnings data. “The earnings season could be a tough one and you will see some disappointments. Some analysts’ expectations are still too high,” Mr McNaught-Davis said. (Additional reporting – Bloomberg and Reuters)