European shares rally

European shares rallied in tandem with other risk assets on Wednesday after leading central banks announced joint action to inject liquidity into financial markets strained by the eurozone's debt crisis. Banks and other cyclical stocks were among the top gainers, with the STOXX Europe 600 Banks index and Basic Resources index both up more than 4 percent by the close.
Driving the rally was a co-ordinated move by the US Federal Reserve, the European Central Bank and the central banks of Canada, Britain, Japan and Switzerland to lower the cost of existing dollar swap lines to prevent a liquidity squeeze. "It gives an indication that monetary authorities are prepared to do what is required to stop a freeze-up in the funding markets," Michael Hewson, market analyst at CMC Market, said.
As a result, the FTSEurostocks 300 rose 3.6 percent in its fourth consecutive day of gains, climbing back to levels not seen since mid-November. The index had begun recovering early losses after China, the world's second-biggest economy and the largest metals user, moved to ease bank reserve ratios for the first time in nearly three years to shore up economic growth, boosting basic resources shares.
ArcelorMittal, the world's largest steel producer, topped the gainers' chart, rising 11 percent, with Antofagasta up 9.2 percent as risk-hungry investors piled into cyclical commodities, such as copper, which rose over 5 percent by the European close. Providing further support to the market, the latest US economic data suggested the world's largest economy was making progress in its path toward recovery.
The US private sector added the most jobs in nearly a year in November, while business activity in the US Midwest grew faster than expected in November. In a sign investor sentiment improved, the Euro STOXX 50 volatility index, Europe's main fear gauge, ended 4.1 lower after hitting a one-month trough in afternoon trade. The prospect of a global liquidity injection supported banks, which had borne the brunt of recent tensions in the funding markets, caused by the eurozone debt crisis and exacerbated by the introduction of more stringent capital requirements.
"It helps [banks'] margins because you make it cheaper for them to borrow US dollar liquidity but if that's all we're going to get, we're not going to solve the problem," Credit Suisse strategist Christel Aranda-Hassel said. She called for the European Central Bank to bring its interest rate to zero and launch a fully fledged quantitative easing programme to ease pressure on lenders and sovereigns.