European shares climb ahead of ECB

Thursday, 03 May 2012 18:02

Posted by Shoaib-ur-Rehman Siddiqui

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PARIS: European stocks rose early on Thursday after results from companies such as Societe Generale and France Telecom reassured investors who shrugged off a sharp rise in Spain's borrowing costs at a bond auction.

Trading was choppy, however, as traders awaited the outcome from the European Central Bank policy meeting, with the bank seen keeping interest rates on hold at 1 percent and resisting calls to restart its bond-buying programme to ease pressure on Spanish debt.

At 1100 GMT, the FTSEurofirst 300 index of top European shares was up 0.9 percent at 1,053.33 points, capped by strong resistance at the 38.2 percent Fibonacci retracement of the slide from mid-March to late April.

The ECB has put its bond buying programme on hold for several weeks despite a rise in Spanish yields to 6 percent. A move above that, to 7 percent, is considered an unsustainable price to pay for refinancing the country's debt.

"Clearly, the hurdle to overcome is the (German) Bundesbank, which remains keen to fulfill its role as the euro zone's fiscal policeman now that question marks are being raised over France's commitment to cost cutting as (Socialist candidate Francois) Hollande inches closer to an election win on Sunday," Saxo Bank macro strategist Mads Koefoed said.

The euro zone's blue-chip Euro STOXX 50 index was up 1.4 percent at 2,324.90 points.

"Half of the Euro STOXX 50 stocks trade below their book value, which seems quite excessive to me, but the pull-back might not be over yet and it's like catching a falling knife," said Eric Galiegue, head of Valquant, a Paris-based financial research firm.

Shares in Societe Generale were up 0.8 percent after a surprise surge in the French bank's trading revenues from its bond, currency and commodity desks helped soothe the effect of a series of one-off charges.

Other banks gained ground, with French investment bank Natixis up 2.1 percent, Spain's Bankinter up 2.2 percent and Italian lender Intesa SanPaolo up 2.4 percent.

Spain's borrowing costs jumped at an auction of three- and five-year bonds on Thursday, though the sale met strong demand, signalling investors have not yet lost their appetite for the country's debt.

The sale was the first since Standard and Poor's cut Spain's credit rating by two notches to BBB+ last week and followed data showing the economy has slipped into its second recession since late 2009.

Around Europe, the UK's FTSE 100 index was up 0.6 percent, Germany's DAX index was 1.2 percent higher, and France's CAC 40 was up 1.3 percent.

France Telecom added 2.9 percent after the telecom major said a revamped offering had helped limit the damage caused by the launch of a low-cost mobile competitor in January.

Telecom Italia was up 3.7 percent and Telefonica up 2.4 percent.