However, mounting expectation of a wave of recapitalization in the European banking sector as well as Erste Group Bank’s warning that it would make a big loss this year prompted European investors to lock in some of the recent strong gains made in banking stocks.
On Wall Street, the Standard Poor’s 500-stock index opened sharply higher, with an early gain of 2.7 percent. The Dow Jones industrial average gained 2.3 percent and the Nasdaq composite index rose 2.9 percent.
At midafternoon in Europe, the Euro Stoxx 50 was up 0.6 percent. The FTSE 100 in London was up 0.9 percent and the DAX in Frankfurt rose 0.7 percent. Europe’s main volatility index dropped to its lowest level since early September.
“We’re getting signals on a lot of fronts that the end of the crisis is coming,” said Valerie Gastaldy, head of the Paris-based technical analysis firm, Day By Day.
“The bottom line for European equities is that banking stocks have recently shown resilience despite that nothing has really changed on the news front. The question now is: Is this the start of a bear market rally that will last for a few weeks, or is it the start of a trend that could go on for six months? It too early to say.”
German bond futures hit their lowest level since early September on Monday, signaling a potential change in trend.
Shares of Erste Group Bank tumbled 14 percent after the East European lender warned it would post a big loss on the year and would not pay a dividend after taking hits on its foreign currency loans in Hungary and euro zone sovereign debt.
Société Générale was down 0.4 percent, HSBC down 0.2 percent and UBS down 0.3 percent, as investors locked in recent gains.
Over the weekend, the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, said they would work out a plan to recapitalize European banks, come up with a sustainable answer to Greece and accelerate economic coordination in the euro zone by the time of a Group of 20 gathering in Cannes, France, on Nov. 3-4.
“Recapitalizing the banks would be a strong signal sent to the market, even if banks don’t necessarily need fresh funds,” said Benoit de Broissia, an analyst at KBL Richelieu.
“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.”
Article source: http://feeds.nytimes.com/click.phdo?i=ac4416890a3aa6dbc01b6ba71cc375e0
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