A turnaround in the banking sector helped Europe stocks bounce off the worst close in nearly six years, after reports that Citigroup wouldn't be fully nationalized and that Royal Bank of Scotland would break itself in half.
The gains also came as European leaders called for doubling the International Monetary Fund's war chest to $500 billion to assist Central and Eastern European nations, as well as for increased regulation of hedge funds and rating agencies. See story.
The pan-European Dow Jones Stoxx 600 climbed 0.5% to 177.85, as the banking sector took back some sharp losses made last week when nationalization fears hit the sector.
U.S. stock futures advanced after a report in the Wall Street Journal that Citigroup was in talks with the U.S. government for an increased stake but that the government would stop short of fully nationalizing the lender. See Citi story. See Indications.
Closer to home, Royal Bank of Scotland ) jumped 15%.
The lender plans to split in two, slash costs by more than 1 billion pounds ($1.46 billion) and potentially cut up to 20,000 jobs, as nationalized U.K. lender Northern Rock prepares to reverse course and revive its mortgage lending. See full story.
And French lender Natixis rose 10.2% on a report of a possible 1.5-billion-euro fund from its soon-to-be-merged parents, Groupe Banque Populaire and Groupe Caisse d'Epargne.
"In our opinion, the current developments show the commitment of countries to support their banks," noted strategists at LBBW.
The German DAX 30 added 0.9% to 4,049.91 and the French CAC 40 rose 0.8% to 2,773.95. The U.K. FTSE 100 traded up 0.2% to 3,895.31, underperforming rivals, as oil producers weighed.
Royal Dutch Shell shares fell 1% and BP shares declined 0.7%.
Barclays Capital said that BP and Royal Dutch Shell are its key underweights in the large-cap European oil sector .It started the sector at negative after 30% outperformance over the last twelve months.
"Equity markets are pricing an extended downturn for most sectors but not, in our view, for the large-cap oils," the broker said. "Facing the largest-ever fall in oil price, the European integrated oil sector is trading near an all-time high versus the market on 2009 earnings forecasts," it added.
Still, the broker was more positive on Total , up 1.5%, Eni , up 1.4%, and Repsol , up 1.4%., starting these companies at overweight.
It said Eni and Total have more defensive earnings and cashflows and are less expensive than the integrated group. Repsol has higher financial risk but less operational leverage to oil price weakness, the broker noted.
Elsewhere, ING Group climbed 3.1%. The firm named a new chief financial officer, HSBC's Patrick Flynn.
Italy's Unicredit was another standout, up 7%, after reassuring on 2008 profit trends.
Additionally, Swiss Life Holding shares climbed another 8.2%.
UBS upgraded the insurance firm to neutral from sell, noting the firm's improved solvency ratio which it said relieved capital concerns. Citigroup upgraded the stock to buy from hold, saying the statement goes a long way to arguing that it can do without a dilutive capital increase.
Of the losers, French construction firm Saint-Gobain shares extended Friday's losses with an 8.6% drop. Last week, it announced that it intends to raise capital from its shareholders.
