Shares rally on Merkel comments

Shares rallied today, as a renewed pledge by France and Germany to come up with a plan by the end of the month to tackle the euro zone debt crisis and support the region's banks helped the market extend its sharp rally into a fourth session.

The Standard and Poor's 500 Index surged 2.9 per cent to 1,187.97 as of 11.47am in New York for its biggest advance since August. The Stoxx Europe 600 Index climbed 1.7 per cent for a fourth straight gain.

The S&P 500 has rebounded about 8 per cent from a 13-month low on October 3rd amid optimism that European leaders will succeed in taming the debt crisis and as economic data topped estimates. German chancellor Angela Merkel and French President Nicolas Sarkozy said yesterday they will deliver a plan to recapitalise European banks and address the Greek debt crisis by the November 3rd Group of 20 summit.

Reports this week may show US retail sales increased in September at the fastest pace in six months, adding to evidence that growth is rebounding.

"It's a risk-on day," Stephen Wood, who helps oversee about $163 billion as the New York-based chief market strategist for Russell Investments, said in a telephone interview. "Is it a relief rally? Yes, in some ways. While a Greece default is not something that can really be addressed or avoided, the consequences on the banking system can be avoided."

The S&P 500 added to last week's 2.1 per cent advance and climbed above its highest closing level since September 20th. Gauges of financial, commodity and energy companies rose more than 3.4 per cent for the biggest gains among 10 industries.

The Irish index of shares was up slightly, rising by 22.18 points to 2584.92 by 4.45pm.

Over the weekend, German chancellor Angela Merkel and French president Nicolas Sarkozy said they would work out a plan to recapitalise European banks, come up with a sustainable answer to Greece and accelerate economic coordination in the euro zone by a G20 summit in Cannes on November 3rd-4th.

"Recapitalising the banks would be a strong signal sent to the market, even if banks don't necessarily need fresh funds," KBL Richelieu analyst Benoit de Broissia said.

"It would help ease the tensions and restore investors' confidence in the sector. The best solution would certainly be an investment from states in the form of preferred shares that could be bought back when things settle down."

Reuters