European markets open strongly after gains in Asia

[October 20, 2008]  LONDON (AP) -- European markets opened strongly Monday after solid gains in Asia, with financial stocks doing well on hopes that the crisis in the markets has abated amid signs banks may be less wary of lending to each other.

Britain's FTSE 100 index of leading shares was up 68.74 points, or 1.7 percent, at 4,131.75, while Germany's DAX was 82.98 points, or 1.7 percent, higher at 4,864.31. The CAC-40 in France was 50.23 pints, or 1.5 percent, stronger at 3,380.15.

Those gains follow the 3.6 percent advance on Japan's Nikkei 225 to 9,005.59 and the 5.3 percent jump in the Hang Seng index in Hong Kong to 15,323.01.

Financial stocks were doing particularly well in Europe. In Germany, shares in Deutsche Bank AG were up more than 3 percent, while Commerzbank AG was 1.4 percent higher. In Britain, Lloyds TSB PLC and Royal Bank of Scotland PLC shares were both 2 percent higher.

The biggest gainer in Europe was Amsterdam-listed ING Groep NV after the Dutch government injected euro10 billion ($13.4 billion) into the financial company over the weekend. Its shares were up 23 percent, almost recouping most of last Friday's losses.

Energy stocks were also up as oil prices rose another $2 a barrel to over $73 on mounting talk that the Organization of Petroleum Exporting Countries will cut production at the end of this week in an attempt to shore up prices that have fallen by 50 percent in three months.

In spite of the early rally, confidence in the markets remains fragile given last week's extreme volatility and interbank lending rates that remain abnormally far above central bank benchmarks, a sign of distress in credit markets.

"We would be slightly more confident in suggesting that equities have reached a trough if we were to see some normalization in money market spreads or a reduction in measures such as equity market volatility," said Peter Dixon, an analyst at Commerzbank.

"The fact that both remain elevated suggests that we cannot make such a call with any degree of certainty," he added.

Particular focus will be on interbank lending rates this week and whether the logjam in credit markets is breaking, in light of the flurry of activity by governments over the last couple of weeks. There are growing signs that the government bailouts of banks around the world, the coordinated interest rate reductions announced earlier this month and massive liquidity boosts by central banks, are beginning to reduce lending rates between banks.

Overnight, the Hong Kong interbank offered rate, known as Hibor, for three-month loans tumbled to 3.66 percent from 4.19 as the territory's de facto central bank pumped more money into the financial system.

Divyang Shah, a strategist at Commonwealth Bank of Australia, thinks that three-month interbank rates could fall "aggressively" this week.

On Friday, the interbank lending rate for three-month dollar loans fell for the fifth day running, the first weekly decline in three months. It dropped 0.08 percent to 4.42 percent, while the three-month Euro Interbank Offered Rate, or Euribor, fell almost 0.045 percentage points to 5.045 percent.

"Early indications are that 3-month Libor could fall by around 0.24 percent today," said Shah.

Earlier in Asia, South Korea's Kospi climbed about 2.3 percent after the government's announcement Sunday to provide up to $100 billion to secure banks' maturing foreign currency debt and another $30 billion for the banks. Financials led the way, with Hana Financial Group up 8.4 percent and KB Financial Group Inc., the holding company for top South Korean lender Kookmin Bank, adding 3.2 percent

The nation's stocks and currency have spiraled lower in recent days as analysts questioned the ability of the country's financial institutions to acquire dollars to refinance loans.

Mainland China shares, meanwhile, recovered early losses to edge higher in spite of new government figures showing the country's economic growth eased to 9 percent in the third quarter of this year -- its slowest in more than five years.

The reading, while still robust, fed into anxiety that deteriorating financial and economic conditions around the world were damaging Asian growth.

Investors, though, were relieved by lower third-quarter inflation data and pledges of fresh government intervention to support the economy. Shanghai's key index, down more 0.7 percent in the morning, ended 2.25 percent higher at 1,974.01.

In Tokyo, shares moved higher amid hopes for better-than-expected corporate earnings.

Panasonic Corp. jumped 8.87 percent after the Nikkei business daily reported over the weekend that, helped by strong TV sales, the electronics giant would beat its interim operating profit forecast by more than 20 billion yen ($197.3 million).

Steelmakers Nippon Steel Corp. and JFE Holdings Inc. also gained on reports that they would be raising their profit forecasts for the year ending March 2009.

Elsewhere, Australia's benchmark moved up 4 percent, boosted by gains in resource companies. New Zealand and Singapore were also higher, while Taiwan shares lost ground.

The general upswing defied Friday's mixed performance on Wall Street, where the Dow fell 127.04, or 1.41 percent, to 8,852.22, as investors balanced an easing in credit markets with more bearish news about the housing market.

The dollar traded at 102.24, up about 0.48, and the euro gained to 1.3496.

[Associated Press; By PAN PYLAS]

AP business writers Jeremiah Marquez in Hong Kong, Elaine Kurtenbach in Shanghai, Kelly Olsen in Seoul and AP writer Tomoko A. Hosaka in Tokyo contributed to this report.

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