Markets maintain three-month highs

WORLD STOCK markets held near three-month highs yesterday as investors drew encouragement from signs that Europe is edging toward resolving its debt crisis even as the economic impact worsens.

DUBLIN

THE IRISH market, however, was an underperformer, as a plummeting Elan dragged the index down. It closed lower by almost 1 per cent, falling back to 3,184.

Elan was the main news on the day as it sank by 8.7 per cent, or 80 cent, down to € 8.43, after testing on its Alzheimer’s drug Bapineuzumab was discontinued.

The drug, which was being developed as a joint venture alongside Johnson Johnson and Pfizer, sent the stock into a downward spin after a second trail failure.

CRH closed up by 1.4 per cent, or 21 cent, after it disclosed that it is looking to take an equity stake in Jaiprakash Associates’ operations in the western Indian state of Gujarat. It finished the day higher at € 15.65.

According to one Dublin broker it is a signal that the construction giant is stepping up its acquisition activity and is taking advantage of a distressed seller.

Aer Lingus released strong passenger statistics yesterday morning but this did not feed into its share price. It closed off by 2 cent, or 1.8 per cent, finishing the day down at € 1.07, albeit on low volumes.

There was additional good news from Providence resources as it provided an update on its Drombeg prospect. It closed up by 10 cent, or 1.3 per cent, on “decent enough volumes”.

LONDON

THE FTSE 100 climbed to its highest close in four months, with heavyweight miners and energy stocks rallying on expectations of global economic stimulus and outweighing a steep sell off in Standard Chartered.

The bank’s shares plunged by 16.4 per cent in their biggest one-day sell off in four years after New York’s top bank regulator threatened to strip the lender of its state banking licence, saying it hid $250 billion in transactions tied to Iran in violation of US law.

The stock single-handedly sliced around 19 points off the FTSE 100, pushing the UK blue chip index to underperform its rallying European peers and setting up the UK banking sector for its worst performance since ECB president Mario Draghi gave risk assets a broad boost two weeks ago with a pledge to act to stem the euro zone crisis.

“It is so oversold that people are saying it’s a good time to buy, but I am saying fundamentally not.There is still a tail risk that the licence could be taken off. Even if that doesn’t happen you still suffer from lots of reputational damage, so the downside risk is so high. That’s why I will be a seller,” said Chirantan Barua, senior analyst at Sanford Bernstein.

“Broader implications are (that) there is no clean bank in the UK and the UK regulatory system will be under scrutiny. You have the last of the Mohicans, and if they’ve gone this whole sector is tainted.”

InterContinental Hotels, the world’s biggest hotelier, added 6.4 per cent after promising to return $1 billion to investors.

EUROPE

EUROPEAN SHARES rose to their highest level in more than four months as firmer oil stocks and a rise in telecoms group Nokia offset a slump in banks due to the Standard Chartered scandal.

The FTSEurofirst 300 index closed up by 0.7 per cent at 1,092.85 points, its highest closing level since March 20th, and the Eurostoxx 50 index rose by 1.6 per cent to 2,440.24.

The STOXX European oil and gas index was the best-performing European equity sector, rising 2.3 per cent after oil prices rose due to a likely drop in North Sea production. This enabled energy stocks such as France’s Total to rise.

“We’re more enthusiastic about oil stocks than banks. Higher oil prices will be beneficial and equity markets are continuing to be supported by the fact that central banks appear ready to ride to the rescue,” said Cheviot Asset Management partner David Miller.

In Paris, the CAC closed up by 1.5 per cent, while in Frankfurt, the DAX added 0.7 per cent.

US

US STOCKS opened higher yesterday, with the SP 500 hitting the psychologically important 1,400 level for the first time since early May.

While investors continue to expect the European Central Bank to take action to combat Europe’s debt crisis soon, they are also watching to see if the Federal Reserve will take any fresh measures to bolster the US economy.

Boston Federal Reserve Bank president Eric Rosengren yesterday repeated his call for the central bank to expand monetary policy, saying the economy was only treading water and inflation was not a problem.

Many analysts expect that the Federal Reserve could launch a third round of bond buying, known as quantitative easing, when it next meets in mid-September. – (Additional reporting: Bloomberg/Reuters)