ECB bond move drives values higher

MARKETS ACROSS Europe continued their rally yesterday on the back of European Central Bank president Mario Draghi’s announcement that the institution would purchase bonds issued by euro zone countries hit hardest by the sovereign debt crisis.

Stocks were aided by speculation that the US would embark on a further stimulus programme after jobs data released by Washington’s Department of Labour fell short of most analysts’ forecasts.

Commentators were largely positive about the ECB move, but some warned that the euro zone’s problems had not gone away.

Jean-Paul Jeckelmann, chief investment officer at Banque Bonhote Cie in Neuchatel, Switzerland, described it as a victory for peripheral states such as Spain and Italy.

“It confirmed that Spain and Italy are too big to fail and that we will find all the resources to keep them alive,” he said. “We have solved the liquidity side of the problem but if the economy continues to worsen, the discussion about solvency will rapidly come back. So it’s very good news in the short term, but still holds some risk for the medium-term.”

DUBLIN

THE MARKET reflected what was happening in the rest of Europe, with leading stocks posting strong gains and most of the activity at the buying side.

Global building materials giant CRH, which accounts for close to one-third of the Iseq index, gained 2.49 per cent to close at €14.80.

Figures from the US showing that highway construction activity was up 3 per cent in July aided the stock’s performance. CRH owns one of the biggest suppliers of asphalt in the US.

Davy analyst Barry Dixon pointed out that highway construction accounts for two-thirds of its Americas materials division, which itself contributes one-third of the group’s profits.

Ryanair added 1.65 per cent to close at €4.371, ending a good week for the carrier which announced on Wednesday that passenger traffic hit a record 8.9 million in August.

Packaging group Smurfit Kappa, which is planning to refinance €400 million of its debt, also made ground, closing 1.87 per cent ahead at €7.08.

LONDON

THE BENCHMARK FTSE 100 gained 17.46 points, or 0.3 per cent, to close at 5,794.8, bringing the week’s increase to 1.5 per cent.

Xstrata soared 3.6 per cent to 1,014p after Glencore, the world’s biggest commodities trader, increased its proposed takeover bid for the miner to 3.05 shares for each Xstrata share.

British American Tobacco, Europe’s largest cigarette maker, retreated 2 per cent to 3,173.5p and Imperial, the second- biggest, fell 3.5 per cent to 2,262p.

The companies have declined more than 4 per cent this week as Russia said it will submit a law banning smoking in public places to parliament by November and reports said France plans to remove branding from cigarette packs.

GlaxoSmithKline, Britain’s largest pharmaecutical manufacturers, dropped 2 per cent to 1,409p, the biggest decline in two months.

Morgan Stanley analysts said they preferred AstraZeneca to Glaxo in 2013, citing risks to Glaxo’s margin expansion

EUROPE

THE STOXX 600 ended the week 2.3 per cent up at 272.30. National benchmark indexes increased in all of the 18 western European markets this week.

France’s CAC 40 added 3.1 per cent and Germany’s DAX Index climbed 3.5 per cent. Italy’s FTSE MIB rallied 6.7 per cent, while Spain’s IBEX 35 jumped 6.2 per cent.

Banks helped set the pace in yesterday’s rally. Spain’s Santander SA climbed 1.7 per cent to €6.08. In France, BNP Paribas added 1.7 per cent to €37.78.

Credit Agricole jumped 6.5 per cent to €5.34 and Société Générale gained 6.8 per cent to €24.49.

Italy’s Banca Monte dei Paschi di Siena surged 11 per cent to 26.4 cent, while Portugal’s Banco Espirito Santo SA soared 8 per cent to 66.2 cent.

US

There was mixed news on the jobs front in the US. Labour Department numbers showed that employers hired 96,000 workers in August, down from 141,000 in July. Economists had predicted that the world’s largest economy would add 130,000 workers last month. But the report showed that unemployment was 8.1 per cent in August, below the consensus view that it would be 8.3 per cent.

US stocks rose as investors bet that the job numbers would spark a further federal stimulus package. SunTrust Banks rose 3.1 per cent to $27.50 after announcing plans to liquidate its Coca-Cola stake to help cover costs of restructuring bad loans.

Cliffs Natural, the largest US iron-ore producer, rallied 14 per cent to $39.57. Caterpillar, the world’s largest maker of construction and mining machines, rose 3.7 per cent to $87.92. Coal producer Alpha Natural surged 15 per cent to $6.78. – (Additional reporting Bloomberg)