Banks gain across the board; car makers also higher
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — European stock markets responded positively on Monday to news that Ireland has applied for a rescue package in an effort to safeguard financial stability, but earlier gains were pared back as the market awaited more details of the plan.
The Stoxx Europe 600 index (ST:STOXX600 269.64, +0.14, +0.05%) rose 0.4% to 270.65 in morning trading after hitting an intraday high of 271.68.
The index posted a loss of 0.3% last week.
Late Sunday, the Irish government said it has formally applied for aid from the European Union, which in turn welcomed the request. The International Monetary Fund also said it stands ready to join the support program, including through a multi-year loan.
No specific number has been given, but Irish Finance Minister Brian Lenihan reportedly said it would be less than 100 billion euros ($136.7 billion). The troubled state of the Irish banking sector had made a bailout deal seem all but inevitable in recent days.
The Irish ISEQ index (XX:IEOP 2,768, -30.53, -1.09%) rose 0.5% to 2,813.76, led by building-materials group CRH PLC (IE:CRG 14.88, +0.05, +0.30%) , which advanced 4.4%.
Irish financial stocks sell off
However, Irish financial stocks came under heavy selling pressure after Prime Minister Brian Cowen on Sunday said they would need to become smaller as part of the bailout. He also reportedly said they may need to raise more capital.
“The good news for banks is that they have a bit more to go on, but for them, because of the support structure in terms of that, it looks as if there’s a fair chance they will further dilute shareholders,” said Bernard McAlinden, strategist with NCB Stockbrokers.
Shares of Bank of Ireland (IE:BIR 0.38, -0.10, -20.10%) (IRE 2.67, -0.21, -7.29%) slid 13%, while Allied Irish Banks PLC (IE:AIB 0.41, -0.02, -4.83%) dropped 0.2%, coming off earlier gains of as much as 6%. Among other financial shares, Irish Life & Permanent Group Holdings PLC (IE:IL0 0.86, -0.29, -25.48%) sank nearly 18%.
In the periphery of the euro zone, earlier gains were trimmed. Portugal’s PSI 20 index (XX:PSI20 7,889, -6.18, -0.08%) was up just 0.2% to 7,910.64 after an earlier gain of nearly 1%. Spain’s IBEX 35 index (XX:IBEX 10,181, -90.90, -0.89%) fell 0.3% to 10,240.50 after an earlier rise of 0.8%.
The market turbulence triggered by worries over Ireland had threatened to spill over in recent days to other high-deficit countries such as Portugal and Spain.
“As long as no one else needs a bailout, the market gets relief from here,” said McAlinden.
Jim Reid, strategist at Deutsche Bank, said it’s probably, though, “a question of when the next problem will occur, rather than whether there will be one.”
“A band-aid solution will take the immediate pressure off from the peripheral risk complex but will not permanently resolve the more fundamental issues of the highly leveraged western financial system,” he said in a note.
In London, the FTSE 100 index (UK:UKX 5,736, +3.61, +0.06%) rose 0.4% to 5,753.89, led largely by gains for mining shares, such as a 1.9% rise for Vedanta Resources PLC (UK:VED 2,255, +47.00, +2.13%) .
In Germany, the DAX 30 index (DX:DAX 6,868, +24.41, +0.36%) rose 0.5% to 6,891.52, with preferred shares of Volkswagen AG (DE:VOW3 125.45, +2.25, +1.83%) gaining 2.2% and BMW AG (DE:BMW 58.55, +1.89, +3.34%) rising around 3.1%.
In France, the CAC 40 index (FR:PX1 3,862, +1.97, +0.05%) rose 0.4% to 3,875.45, led by Renault SA (FR:RNO 44.21, +1.03, +2.38%) , which was up 2.7%.
