European stock markets stabilised this afternoon ahead of two key central bank decisions this week.
With Wall Street futures indicating a higher start for US stocks, the relative calm in Europe was also aided by fresh merger and acquisition speculation in banking and mining sectors and some surprisingly upbeat earnings from non-financial firms.
French bank Societe Generale, hit by a massive rogue trading scandal last month, jumped as much as 7.8 per cent as traders speculated about a potential bid by HSBC.
Nerves about full-year results from European banks continued to hit banking stocks as Germany's Deutsche Bank and Spain's Banco Santander prepare to report tomorrow.
Concern about further write-downs of loans and debts sent Credit Suisse down 4.1 per cent, UBS down 3.1 per cent and Royal Bank of Scotland down 2.6 per cent
However, hopes for an interest rate cut from the Bank of England tomorrow and growing talk that the European Central Bank will start to signal more concern about slowing growth helped partly offset the deep gloom over bank outlooks.
Few expect the European Central Bank to lower interest rates at its policy meeting tomorrow, but growing evidence that Europe too is feeling the effects of the U.S. subprime crisis is stoking speculation of an ECB cut as soon as the second quarter.