European Stocks Rebound As Banks Recover

By The Associated Press

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Aug.11, 2011

A broker speaks on the phone in a trading room in Paris on Thursday. (AP)


European stocks rebounded Thursday as banks recouped some hefty losses despite ongoing concerns over their exposure to the debt of countries like Greece and Italy, while Wall Street was poised for a rebound following another rout.

That reverse on Wall Street on Wednesday prompted a retreat in most Asian markets earlier.

The wild swings on a daily basis and across timezones highlights how febrile markets are at the moment amid concerns over the global economy and the levels of debt in both the U.S. and Europe.

In Europe, Britain's FTSE 100 rose 2 percent to 5,108, while Germany's DAX was 2.5 percent higher at 5,754. The CAC-40 in Paris also gained 2.5 percent to 3,078.

Wall Street, meanwhile, was set for a higher open, with Dow futures pointing up 1.5 percent at 10,880 points, while the broader S&P 500 futures gained 1.7 percent to 1,142.

The recovery on European markets was led by banks, which saw their share prices pummeled Wednesday.

Societe Generale was up over 7 percent, after its CEO asked the French market regulator to investigate rumors about the bank's finances that triggered a 15 percent sell-off in its shares Wednesday. SocGen's French peer BNP Paribas rose 2.2 percent, while Deutsche Bank gained 1.9 percent.

Thursday's gains came after Wednesday's hammering of stocks in Europe and the U.S. Any investor cheer to the news that the Federal Reserve was keeping its super-low interest rates until the middle of 2013 dissipated as they interpreted that stance to mean that the U.S. economy will not improve substantially by 2013.

Worries over Europe's debt crisis spreading have also not been calmed by a more active role in the bond markets from the European Central Bank.

"Modest monetary easing from the Fed and ECB purchases of Italian and Spanish debt have failed calm investor fears that the global economy is heading into a renewed recession driven by the escalating eurozone sovereign debt crisis," said Lee Hardman, an analyst at the Bank of Tokyo-Mitsubishi UFJ.

Though stock markets are swinging wildly, there's been a measure of calm in the bond markets of Spain and Italy in the wake of the ECB's purchase of their bonds. The yield, or interest rate, on Spanish and Italian 10-year bonds remained stable at around 5 percent. That rate is considered manageable for now and is over a percentage point lower than where they were trading a week ago.

However, analysts think that they will have to get even lower to really dampen worries that Europe's debt crisis will ensnare the eurozone's third and fourth largest economies.

"The reality is they will need to buy an awful lot more to get them down to sustainable levels well below 5 percent," warned Michael Hewson, market analyst at CMC Markets.

U.S. weekly jobless claims, due to be released later Thursday in Washington, will be a key factor in determining market direction in the coming days. They are "expected to stay above the psychologically important 400,000 level at 405,000," said Hewson.

Earlier, Asian markets were under pressure following Wednesday's big reverse on Wall Street.

Hong Kong's Hang Seng index fell 1 percent to 19,595.10, but China's main index in Shanghai rose 1.3 percent to 2,703.90.

Japan's Nikkei 225 index slipped 0.6 percent to close at 8,981.94 as a strengthening yen, clobbered Japan's crucial export sector. Honda Motor Corp. and Nissan Motor Corp. each lost 3.5 percent.

By early morning London time, the dollar was 0.4 percent lower at 76.50 yen, not far above the level last week that prompted the Bank of Japan to intervene in the markets.

Meanwhile, the euro was up 0.8 percent at $1.4253 in an environment of higher risk appetite.

In the oil markets, prices recovered alongside equities. The main New York rate was up 88 cents at $83.77 a barrel.

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