Shares gain on hopes of monetary easing

Tue, Mar 27, 2012, 01:00

European shares gained today, with banks among the biggest movers on reports of a stake sale at Royal Bank of Scotland, while expectations of another round of monetary easing in the United States also helped give support.

Royal Bank of Scotland was the top mover, up 4.3 per cent at 28.9 pence, after sources said talks to sell as much as a third in the state-owned bank are being held at the level of the Abu Dhabi ruling family.

Trading was active in the stock, with volume already near its 90-day daily average.

In the past, Abu Dhabi has helped British banks such as Barclays avoid a state bailout and made £3 billion after investing in it during the financial crisis.

"Investors seem to like the idea from an investment point of view and we have seen what happened with Barclays after Abu Dhabi invested in them," IG Markets trader Will Hedden said.

"We have seen a lot of flow into Barclays, but we think around 30 pence is the level to get out at as it represents its high this year, which it failed to break above."

Two people, however, said a deal was no imminent and traders commented that the deal could face hurdles.

"In practice we may see votes against the government taking a large loss on its investment. There remains obstacles for this deal to be executed, unlikely but not impossible," said Atif Latif, director of equities and derivatives at Guardian Stockbrokers.

Buying was active in CaixaBank, up 5.4 per cent, with volume also near its 90-day daily average to become one of the top perfomers.

Yesterday, CaixaBank offered €1.97 per share for Banca Civica in an all-share deal valuing the whole bank at €980 million, creating Spain's biggest bank by domestic assets.

By 11.05am, the pan-European FTSEurofirst 300 index of top shares was up 0.3 per cent at 1,091.67 points in a choppy session and had been up as much as 1,097.89.

Traders said the index was range bound and was meeting resistance near the 1,100 mark, a level which it only broke two weeks ago for the first time since July 2011.

Broker Deutsche Bank, said that while inflows into risk assets will underpin a gradual grind higher, stocks were due for a 3 per cent to 5 per cent drop.

Helping keep the index out of the red was also Monday's comments from Federal Reserve chairman Ben Bernanke who made it clear easy monetary policy would remain in place for some time to support more rapid economic expansion.

"There is the perception that monetary policy staying lower for longer, will provide liquidity to the markets," Ian King, head of international equities at Legal & General, said.

"Loser monetary policy is good for assets prices, but on the flipside it is in reaction to weak economic growth. We are modestly underweight financials and modestly overweight defensives."

He could not give names of individual companies in these areas but said he favoured LVMH and Swatch in the luxury good sector as they are both doing well due to strong sales in Asia.