European stocks at five-month high

EUROPEAN STOCKS edged upwards to their highest closing level since early August yesterday, with euro zone banks racing ahead after a report in the Financial Times suggested that France and Germany were calling for a relaxation of global bank capital rules in order to prevent a fresh credit crunch.

The five-month high in stocks came as investors responded with cautious optimism to the outcome of a meeting of euro zone finance ministers in Brussels to discuss the restructuring of Greek debt.

DUBLIN

The Irish market underperformed the main European indices, with the Iseq achieving a mere four-point rise after cement-maker CRH fell 0.6 per cent to €16.00 on the back of poor forecast for the US non-residential sector. Ryanair, meanwhile, was flat at €3.96, following reports of weak summer bookings at tour operators - which may suggest a shift in custom to low-cost airlines, or could point to a weak consumer economy in the year ahead.

As financial stocks rallied across Europe as fears about a Greek default receded, the Irish banks joined in the brightened mood, with Bank of Ireland finishing up 5.6 per cent at 11 cent and AIB rising 7.8 per cent to 7 cent.

Dragon Oil climbed 2.2 per cent to €6.08 after it published a trading statement affirming its financial strength on the back of rising oil prices and reiterating its commitment to grow to a production target of 100,000 barrels of oil per day - analysts at Davy called its statement “impressive”.

Among the fallers, builders’ merchants and DIY chain owner Grafton fell 1.5 per cent to €2.65, while Independent News Media fell 1.3 per cent to 22 cent.

LONDON

In London, the FTSE 100 benchmark index climbed 0.9 per cent, its highest close since July, with the rise in equity values led by both financial and commodity stocks. Signs that a Greek deal may be around the corner had a positive knock-on effect on other cyclical sectors, spearheaded by integrated oil stocks, as oil prices rose on an EU ban of Iranian crude imports.

Royal Dutch Shell was best off, up 2.5 per cent, after ING started coverage on the oil major with a “buy” rating, on valuation grounds, and said its safe yield of 4.7 per cent should support the shares.

Traders also cited an improving overall macroeconomic outlook as supportive of commodity stocks, with recent better-than-expected data out of the US boosting hopes for a strong reading in its fourth-quarter GDP, due on Friday.

Thomas Cook Group dropped 5 per cent to 14.25 pence after the Financial Times reported the company’s bookings in the first half of January fell 33 per cent compared with the same period last year. The newspaper cited people with access to a leisure-industry gauge of bookings.

Essar Energy recovered some of its poise after last week’s hefty falls, jumping 10.7 per cent to top the FTSE 100 leaderboard, as the India-focused refiner and power generator announced an increase in the resource estimate at its Raniganj coal bed methane exploration block in West Bengal. Trading volume in Essar was 3½ times its 90-day daily average.

Despite the rise in oil prices, British Airways owner IAG managed a 2.1 per cent advance, helped by bullish broker comment, with Citigroup naming the firm its second-top flag carrier pick behind Germany’s Lufthansa.

EUROPE

The STOXX Europe 600 Euro Zone Banking Index rose 3.9 per cent, with major gainers including Commerzbank, Societe Generale and UniCredit up 13, 8.6 and 10.4 per cent respectively.

The FTSEurofirst 300 index of top European shares rose 0.5 per cent to 1,048.21 points, the highest close in more than five months. Italy’s benchmark FTSE MIB was a strong performer, up 1.8 per cent; Greek stocks rose 5.1 per cent.

In France, the Cac rose 0.5 per cent, while in Germany, the Dax index also gained 0.5 per cent, as banking shares advanced - Commerzbank surged 13 per cent and Deutsche Bank closed up 3.1 per cent.

Outokumpu Oyj, Finland’s biggest producer of stainless steel, jumped 14 per cent as it held discussions that may lead to a merger with a unit of ThyssenKrupp, Germany’s largest steelmaker, which gained 2.6 per cent. However, EON and RWE, Germany’s biggest utilities, fell more than 2 per cent.

US

US stocks reversed early gains, after the Dow Jones rose above the highest closing level since May. Investors debated whether a three-week rally was warranted and weighed Europe’s efforts to tame its debt crisis.

Financial shares in the Standard and Poor’s 500 Index reversed an advance of as much as 1 per cent. Procter and Gamble, the world’s largest consumer products company, slumped 1.8 per cent after Stifel Nicolaus and Co. cut its recommendation on the stock. (Additional reporting: Bloomberg/Reuters)