European Shares Jump Most in 17 Months as EU Pledges Loan Fund

By Daniela Silberstein

May 10 (Bloomberg) -- European stocks rallied the most in more than 17 months after policy makers unveiled an unprecedented loan package worth almost $1 trillion to contain the region’s sovereign-debt crisis.

BNP Paribas SA, France’s largest bank, surged 21 percent as the nation’s CAC 40 soared 9.3 percent. Banco Santander SA jumped 23 percent, leading Spain’s IBEX 35 index 14 percent higher for the biggest gain on record. BHP Billiton Ltd., the world’s largest mining company, and Rio Tinto Group climbed more than 5 percent as copper increased.

The Stoxx Europe 600 Index soared 6.9 percent to 253.57 at 4:35 p.m. in London, the biggest gain since Nov. 24, 2008, as only two stocks declined. The gauge last week posted the biggest drop in 18 months as concern grew that the region’s leaders will be unable to halt the spiraling government debt crisis. The measure has fallen 6.8 percent from its 2010 high on April 15.

“There is intent behind these measures and that is helping the markets,” said Christoph Riniker, a strategist at Bank Julius Baer Group Ltd. in Zurich, which manages about $226 billion. “Last week showed that we needed measures from central banks and we’ve almost recovered from last week’s losses. The fundamental picture still points to improvement towards the end of the year.”

Counter ‘Severe Tensions’

Jolted into action by last week’s slide in the euro to a 14-month low and soaring bond yields in Portugal and Spain, the European Union agreed to offer financial assistance to countries facing instability worth as much as 750 billion euros ($980 billion), including International Monetary Fund backing. The European Central Bank said it will counter “severe tensions” in certain markets by purchasing government and private debt and restarted a dollar-swap line with the Federal Reserve.

National benchmark indexes rose in all 18 western European markets. Germany’s DAX gained 5.3 percent and the U.K.’s FTSE 100 increased 5.2 percent. France’s CAC 40 climbed 9.3 percent while Spain’s IBEX 35 jumped 14 percent.

The VStoxx Index, which measures the cost of insuring against declines in the Euro Stoxx 50 Index, lost 22 percent to 38.66, the biggest drop on record.

The support package “shows the ECB, the EU and IMF can act quickly, in spite of all indications to the contrary during the ECB press conference last Thursday and in spite of all doubts about their ability to do so by most U.S. investors last week,” Credit Suisse Group AG’s London-based strategist Andrew Garthwaite wrote in a report. “Ultimately, this will lead all central banks (apart from China) to have a looser monetary policy for longer.”

BOE Bond Purchases

The Bank of England maintained its emergency economic stimulus today as the post-election deadlock leaves officials in suspense on the scope of government spending cuts to curb the record budget deficit. The Monetary Policy Committee kept its bond holdings at 200 billion pounds ($297 billion) for a fourth month and maintained the benchmark interest rate at a record low of 0.5 percent.

European equities were raised to “overweight” from “underweight” by London-based Morgan Stanley strategist Teun Draaisma, who wrote “we are optimistic on earnings growth, driven by emerging markets, U.S. and corporates.”

Against the backdrop of Europe’s fiscal crisis, the global economy has been strengthening. German industrial production rose more than economists forecast in March as the construction industry shrugged off the coldest winter in 14 years. U.S. employers added the most jobs in four years in April, the Labor Department said May 7.

Banks Soar

A measure of bank stocks in the Stoxx 600 rallied 14 percent, the biggest advance since September 2008. BNP Paribas jumped 21 percent to 53.12 euros, the biggest gain since at least 1993. Santander, Spain’s biggest bank, jumped 23 percent to 9.45 euros, the largest increase since 1990.

Deutsche Bank AG, the largest German lender, surged 13 percent to 51.63 euros. Dexia SA, Belgium’s biggest bank by assets, soared 17 percent to 3.86 euros. Allied Irish Banks Plc rallied 24 percent to 1.38 euros. National Bank of Greece SA advanced 17 percent to 12.11 euros.

Bank of Ireland Plc climbed 18 percent to 1.67 euros. The country’s biggest bank said investors agreed to swap 852 million euros of subordinated debt for equity, prompting the lender to cut the size of a planned share sale by almost 10 percent.

BHP Billiton advanced 5.7 percent to 1,971.5 pence. Rio Tinto, the world’s third-biggest mining company, rose 7 percent to 3,348.5 pence. Copper surged 2.3 percent in London, ending the longest losing streak since January.

Anglo American Plc rallied 8.3 percent to 2,708 pence. The owner of stakes in the world’s biggest platinum and diamond producers said it sold its zinc asset portfolio to Vedanta Resources Plc for $1.34 billion. Vedanta increased 11 percent to 2,560 pence

Bilfinger Berger AG surged 12 percent to 49.25 euros. Germany’s second-biggest builder said first-quarter net income rose to 48 million euros from 23 million euros and forecast output volume will gain.