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 Lisbon on Sunday announced a near 5 billion-euro rescue of the
country's largest listed bank Banco Espirito Santo, preventing its
collapse and potential contagion across the continent's banking
sector.
This dovetailed with easing fears of higher U.S. interest rates
following Friday's U.S. employment report, and eclipsed growing
geopolitical concerns surrounding the Middle East and effect of
Western trade sanctions on Russia.
"The market's initial reaction is that it's pretty reassuring to see
Portugal moving quickly to rescue BES. Overall it eases systemic
fears that had resurfaced last week," Saxo Bank sales trader Andrea
Tueni said. "But it's not enough to spark a real rebound in the
overall market. This is mostly a technical bounce from last week's
slide and the trend remains negative for now," he said.
In early trade on Monday the FTSEurofirst 300 index of leading
shares was up 0.2 percent at 1,335 points, led by a 0.8 percent rise
in pan-European banking stocks.
Euro zone financials were up 1.3 percent and Portuguese banks were
up 6 percent. Shares in BES were still suspended.
Germany's DAX rose 0.2 percent to 9,226 points, France's CAC 40 was
up 0.5 percent at 4,223 points and Britain's FTSE 100 index was up
0.2 percent at 6,692.
European shares led the losses last week as concern mounted over
tension between Russia and the West, as well as the BES crisis which
saw its share price plunge 50 percent on Friday alone.
It was a more mixed picture in Asia. MSCI's broadest index of
Asia-Pacific shares outside Japan rose 0.4 percent, largely as
Chinese shares continued to rally on signs that the economy was
regaining momentum, but Japan's Nikkei average hit a one-week low.
The three main indices on Wall Street pointed to a higher open on
Monday of around a third of one percent. The S&P 500 <.SPX> fell 2.7
percent last week, its biggest weekly decline in more than two
years.
FED FEARS EASE
Europe's bond markets showed a similar sense of relief, with yields
on Portuguese, Spanish and Italian bonds all down by five or six
basis points.
The rate-sensitive two-year notes yield was little changed at 0.47
percent and the 10-year yield fell two basis points to 2.49 percent.
Bond yields were also capped by Friday's U.S. jobs data for July,
which showed job growth lower than forecast, the unemployment rate
higher than expected, and perhaps most importantly almost no growth
at all in average hourly earnings.
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A Reuters poll on Friday after the jobs data showed that a majority
of top Wall Street bond firms saw no rise in U.S. interest rates
before the second half of next year.
There's been no shortage of reasons to keep investors on their guard
either, from Argentina's debt default last week to the spreading
violence and tension across the Middle East, to the economic
consequences of the West's sanctions on Russia.
About 40 European blue-chips, including many German companies,
derive more than 5 percent of their revenues from the Russian
market.
"We have lowered our euro area GDP growth projections in response to
deteriorating trade relations with Russia," Barclays economists said
in a note on Monday, now predicting 0.9 percent growth this year,
down from 1.0 percent, and 1.4 percent next year, down from 1.6
percent.
All major currencies were flat on Monday compared with late New York
levels on Friday. The euro was at $1.3427, off last week's 8-month
low of $1.3366, while the dollar stood at 102.55 yen, off
Wednesday's four-month peak of 103.15 yen.
U.S. crude oil futures edged up to $98.09 per barrel, recovering
from a six-month low of $97.09 on Friday, and gold was little
changed at $1.295 an ounce.
(Reporting by Jamie McGeever, additional reporting by Blaise
Robinson in Paris; Editing by Toby Chopra; To read Reuters Global
Investing Blog click on http://blogs.reuters.com/globalinvesting;
for the MacroScope Blog click on http://blogs.reuters.com/macroscope;
for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub)
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