European markets rise on Greek talks
EUROPEAN shares closed at a near seven-month high yesterday as Eurozone finance ministers edged closer to a long-awaited agreement on a rescue package for Greece.
The pan-European FTSEurofirst 300 index of top shares rose 0.7 per cent to 1,090.95 points. Volume was low, at 69.5 per cent of the 90-day average, with Wall Street closed for a holiday.
“We have had quite a good run year-to-date and a lot of it is premised on Greece getting its bailout. There may be another day of euphoria but then we will get back to normal and could sell off a bit,” said Michael McNaught-Davis, head of international equities at Scottish Widows.
Eurozone finance ministers inched towards approving a second bailout for debt-laden Greece that will resolve the Greek government’s immediate repayment needs.
Stocks rose almost across the board. Banks, many of which have significant exposure to Greece and other peripheral Eurozone countries and have taken a hit on their balance sheets,were among the biggest gainers.
Eurozone banking stocks rose two per cent, and are now up 18 per cent in 2012. As well as more confidence that the Eurozone debt crisis is being contained, the sector has gained from the European Central Bank’s long-term refinancing operation, providing cheap funding.
“While there remains broad scepticism that this bailout will effectively draw a line under the long running Greek debt saga, it would appear that markets believe that for now, an imminent messy default scenario could well be averted,” said Michael Hewson, senior market analyst at CMC Markets.
Mining stocks gained after top metals user China cut the amount banks must hold in reserve, which should allow more lending to boost its economy. China’s central bank effectively made available an estimated $55.6-$63.5bn extra cash for lending, which could boost demand for metals.
The STOXX Europe 600 Basic Resources Index rose 1.6 per cent, taking its gain in 2012 to 16 per cent.
McNaught-Davis said he was sticking with more defensive sectors such as healthcare, consumer discretionary and consumer staples, adding he had “warmed up a bit towards cyclicals” and was less underweight on industrials than he had been, including buying German carmaker BMW.