MW: European shares surge after support package agreed
Banks lead advancers in Europe; euro climbs versus dollar
By Sarah Turner, MarketWatch
LONDON (MarketWatch) -- European shares surged on Monday behind double-digit-percentage gains for financials, after European finance ministers and central bankers agreed a 750 billion euro loan package designed to stop a crisis that started in Greece spreading through the rest of the region.
After tumbling 8.7% last week on fears of bond-market contagion, the Stoxx Europe 600 index (ST:SXXP 252.41, +15.23, +6.42%) jumped 6.2% to 251.78.
That's its best one-day percentage gain since a 6.7% jump on Dec. 8 2008 made after news that the then U.S. president-elect, Barack Obama, intended to introduce massive infrastructure investment.
It was the benchmark index's sixth-best one-day percentage gain in its history.
"Somewhat belatedly -- but surprisingly -- the European Union and the IMF produced a very determined response to the problem," said Mike Lenhoff, chief strategist at U.K. brokerage Brewin Dolphin.
European finance ministers and central bankers agreed late Sunday to introduce the new loan program, and the European Central Bank will buy up government bonds in the secondary market and reverse plans to exit various special liquidity operations. Read more on Europe deal.
"This truly is overwhelming force, and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion," said Marco Annunziata, chief economist at UniCredit Group.
Behind the surge for the Stoxx 600 were some of Europe's largest banks: BNP Paribas (FR:BNP 52.77, +8.87, +20.19%) climbed 19.8%, Credit Agricole (FR:ACA 10.88, +1.82, +20.03%) soared 19.5% and Santander (ES:SAN 9.34, +1.63, +21.08%) (STD 12.02, +2.19, +22.28%) shares surged 21.4%.
Allied Irish Banks (IE:AIB 1.39, +0.28, +24.80%) (AIB 3.56, +0.53, +17.49%) soared 24.1%. The moves helped the banking sector of the Stoxx 600 index to a gain of 13.6%.
Banks are big holders of government debt, and the exposure of foreign banks to the debt of Greece, Portugal and Spain amounts to around 1.2 trillion euros ($1.5 trillion), according to Citigroup. Read more on bank gains.
In addition, Credit Suisse bank analysts noted that the measures from the ECB "should solve any and all short-term liquidity problems" for the banking sector.
The major regional benchmarks were also soaring, with the U.K. FTSE 100 index (UK:UKX 5,371, +247.85, +4.84%) up 5% at 5,377.78, the German DAX index (DX:DAX 5,998, +282.15, +4.94%) climbing 5% to 6,002.19 and the French CAC-40 index (FR:PX1 3,697, +304.01, +8.96%) surging 9% to 3,696.69.
The Greek ASE Composite (XX:??? 1,630, -47.95, -2.86%) jumped close to 10%, up 9.2% to 1,780.14. The Portugal PSI 20 (XX:PSI20 7,282, +657.84, +9.93%) jumped 9.9% to 7,273.56 and the Spain IBEX 35 (XX:IBEX 10,230, +1,184.00, +13.09%) leapt 12.8% to 10,201.10.
Asian shares jumped and U.S. stocks opened with strong gains. Read more on Asia Markets. Read more on US stocks.
The euro (CUR_EURUSD 1.2867, -0.0051, -0.3948%) climbed against the dollar, moving up 1.4% to $1.2940 and copper and light sweet crude-oil futures were also advancing. Read more on currencies.
The British pound (CUR_GBPUSD 1.4971, +0.0139, +0.9358%) also rose, with negotiations continuing about forming a new government in the U.K. Sterling rose 1.6% to $1.5006. Read more on U.K. negotiations.
Miners and oil companies were also performing strongly, with Rio Tinto (UK:RIO 3,346, +224.50, +7.18%) (RTP 49.87, +3.94, +8.57%) shares up 7.7% and Repsol (ES:REP 17.04, +1.50, +9.62%) shares up 9.2%.
Morgan Stanley European equity strategists said that, although it's possible the correction is not fully over, "with the recent policy initiatives and, as of Friday, 24% upside to our 1280 MSCI Europe target on a 12-month view, we'd rather be buyers than sellers."
"Good value has now emerged," they said while going overweight from underweight on European equities.
Even with Monday's gains, the Stoxx 600 index is only back at where it was trading in early May.
Michael Hart, a market strategist at Citigroup, said he's not expecting markets to immediately move back to mid-April peaks due to "residual uncertainty."
"Important caveats remain in place. As in previous instances, markets may remain concerned about implementation risks. The actual approval of each step could take weeks," he said.
"The risk of sovereign default remains high and policy has so far focused on crisis resolution rather than crisis prevention. In that, doubts over the euro zone as a self sustaining system may remain," he added.
