European shares raced higher on Monday, boosted by energy, financials and automobile stocks, on optimism that government stimulus packages would soften a global economic downturn and improve demand for basic commodities.
At 1154 GMT, the FTSEurofirst 300 index of top European shares traded 5.4% higher at 837.05 points. The benchmark has fallen 44% so far this year, hammered by a credit crisis that piled up losses at banks and tipped major economies into recession. Energy shares led the rally, helped by a 6% jump in crude prices, while banks, pharmaceuticals, automobile and mining shares also advanced.
Gas producer BG Group, Tullow Oil, BP and Royal Dutch Shell added between 5 and 8.6%. Barclays jumped 8.5%, Lloyds TSB was up 7%, Royal Bank of Scotland added 6% and UBS rose more than 5%.
US President-elect Barack Obama unveiled plans over the weekend for the largest US infrastructure investment program since the 1950s and to create 2.5 million jobs, which analysts said could cost at least $500 billion. “After the confirmation of Obama’s spending plans, a breath of fresh air has blown through the markets,” said Andrew Turnbull, senior sales manager at ODL Securities. “Our stance is that this is a positive move by the US president elect and the markets will welcome plenty more of this,” he added.
Chinese and European leaders were due to plot their next steps on Monday to move the world economy back from a precipice, India planned $4 billion of extra spending and Australia began handing out cash to families and pensioners, part of a stimulus package unveiled in October.
Automobile shares rose on hopes stimulus plans would revive vehicle demand. The US Senate is due to reconvene on Monday as White House and Democratic congressional negotiators sought to draft legislation to bail out the auto sector. Daimler surged 8%, Volkswagen rose 4.7%, Porsche gained 4.4% and Fiat was up 5%. Across Europe, Britain’s FTSE rose 4.8%, France’s CAC gained 6.7% and Germany’s DAX rose 6.3%.
LACK OF LENDING
Analysts said stimulus packages would improve sentiment, but the banking system was yet to function smoothly despite trillions of dollars of bailout plans across the globe. A lack of bank-to-bank lending remains at the root of the world economy’s problems. Banks deposited €250 billion at the European Central Bank overnight, a sign that they are still hoarding money as fears of further bank collapses persist.
“The central banks have done their job and now the focus is on governments -- in addition to Obama’s plan we have stimulus packages from India, Australia and China,” said Thierry Lacraz, strategist at Pictet in Geneva. “While this will not avoid a recession, investors at least have the feeling that the people in charge are doing the right thing,” he said.
German exchange operator Deutsche Boerse rose 7.8% after it said over the weekend that it was in regular talks with other exchanges such as NYSE Euronext. It said any merger talks with NYSE Euronext had ended without success. Carphone Warehouse fell 3.5% after David Ross, the co-founder of British mobile phone retailer, resigned as deputy chairman after failing to declare he had pledged shares he owned in the company against personal loans. There were concerns Ross might have to sell his 19% stake.
Italian oil group ENI jumped more than 9% after Libya’s ambassador to Italy said his country would be interested in buying up to 10% of ENI, one of a number of investments it is considering in Italy. (Reuters)