European shares gain

European shares gained on Friday as a short-selling ban on financial stocks by France, Italy, Spain and Belgium provided a relief rally in beaten-down banks, while strong US retail sales data also helped investor sentiment. But European shares made their third consecutive week of losses as the market swung wildly throughout the past five days, driven by rumours about the health of the financial sector and concerns over the eurozone debt crisis spreading.
Banks were among the best performers on Friday, with the STOXX Europe 600 Banks index up 4.5 percent. However, with all the volatility throughout the week the index ended up making a weekly loss of 2.4 percent. Societe Generale, rallied for the second day, up 5.7 percent to feature on France's CAC leader board after dropping 15 percent on Wednesday on rumours about its financial solidity, which were later strongly denied.
Belgian financial group KBC and Franco-Belgian bank Dexia gained 9.6 percent and 17.3 percent in volumes nearly double their 90-day daily average. France, Italy, Spain and Belgium imposed a ban on short-selling financial stocks in an attempt to reduce the volatility and to help bring back confidence.
"Markets have stabilised a little bit after the short-selling ban," said Colin McLean, managing director at SVM Asset Management in Edinburgh. "But banks have fallen pretty far and most are oversold and are just bouncing off low levels." Also easing fears about the health of the banking sector was data from the European Central Bank which showed the overnight loan facility by banks totalled 227 million euros, much lower than the 4 billion euros borrowed the previous night.
"This indicator is often regarded as a measure of bank risk aversion. (Today's data) do not indicate any hard funding crisis," a Paris-based trader said. Investors' appetite for risk improved, with the Euro STOXX 50 volatility index, Europe's main fear gauge falling 7.9 percent, but it was still up 14.3 percent for the week.
The higher the volatility index, the lower investor appetite for risk. The pan-European FTSEurofirst 300 index of top shares closed up 3.6 percent at 968.21 points after being as low as 921.63. The index extended gains in afternoon trade after July US retail sales posted their biggest gain since March, boosting hopes the economy was not slipping back into recession. But it ended the week down 0.7 percent, the third consecutive weekly loss for the index.
Although the short-selling ban provided some relief, fund managers thought sell-offs were still likely to occur until policymakers in the eurozone come up with a permanent solution to the eurozone debt crisis. "We are still underweight the financial sector, the eurozone crisis is not resolved and banks will have to do more capital raising," McLean said.
Investors will be looking next week at a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel to discuss how to make the eurozone work more effectively and may explore ideas about expanding the rescue fund. "The short-selling ban has provided some relief," Andrea Williams, who manages $2.1 billion in assets for Royal London Asset Management, said. "But it does not change the fundamentals on the situation in the eurozone peripheries, we are still not sure on things like whether the European Financial Stability Facility will be expanded."