US rally helps European markets post strongest gains since 2003

European markets shrugged off Société Générale's disclosure of a massive fraud to post their strongest gains since 2003. Buoyed by an overnight rally on Wall Street and hopes of a bailout for bond insurers in the US, stocks rebounded strongly from the previous day's lows. Ciarán Brennanreports.

"The Dow moved up 4 per cent and that gave markets in Europe the go-ahead. With talk of a bailout for bond insurers, everything was right," said one Irish trader.

The FTSE Eurofirst 300 closed up 5.3 per cent to 1,329.48; Frankfurt's Xetra Dax climbed 5.9 per cent to 6,821.07; the CAC 40 in Paris added 6 per cent to 4,916.98; and London's FTSE 100 rose 4.8 per cent to 5,875.8. The Iseq also put in a strong performance, up about 5 per cent at 6,813.70.

Despite the problems at Société Générale, financial stocks were resilient, largely buoyed by hopes of a solution to the problems facing bond insurers in the US, following the credit rating downgrade of Ambac last week by ratings agency Fitch.

US stocks were modestly firmer in choppy trade yesterday morning as investors digested an array of mixed earnings and renewed weakness among bond insurers after a ratings downgrade. The early gains on Wall Street complemented Wednesday's rally after New York state regulators held talks with banks about a bailout for struggling monoline insurers. These insurers underwrite securitised debt products like the mortgage-backed bonds behind the summer credit crunch. The bailout could involve the banks committing up to $15 billion (€10.2 billion) to support the insurers.

European financial stocks enjoyed strong gains, helped by positive news from Allianz, Europe's largest insurer. Among the insurers, France's Axa was up 10.4 per cent to €24.30, Swiss Re added 9 per cent to 83.25 Swiss francs, while Germany's Allianz rose 11.3 per cent to €123.85. In Britain, life assurers also moved higher, with Aviva up 8.4 per cent to 647.2p, Legal & General 6.9 per cent higher at 134.1p and Standard Life up 4 per cent to 234.3p.

Bank stocks were also lifted. Anglo Irish Bank jumped 9.8 per cent to €10, Switzerland's UBS added 8.1 per cent to SFr47.34 and Franco-Belgian group Dexia climbed 8.8 per cent to €16.20.

Strong results from Nokia boosted the markets, while the mood was helped by upbeat data from the US, Germany and China that encouraged the view that the global situation may not be as grim as feared.

Chinese gross domestic product grew 11.4 per cent in 2007, the highest pace in 13 years.

There were signs of strength in the euro zone, as the Ifo index of German business confidence rose to 103.4 from 103.0 in December. - (Additional reporting: Financial Times service)