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Europe stocks rally as rate cuts take centre stage

  European stocks reversed initial losses to rally early on Thursday, rising for the third session in a row as investors hoped deep interest rate cuts would help remedy a global economic slump.

 

At 0926 GMT, the FTSEurofirst 300 index of top European shares was up 1.4% at 841.15 points ahead of rate decisions by the Bank of England at 1200 GMT and the European Central Bank at 1245 GMT, both expected to yield big cuts.

Sweden became the latest country to aggressively cut interest rates, slashing its key rate by a record 175 basis points to 2.00% on Thursday, in a bold move aimed at preventing its economy from falling deeper into recession. Earlier on Thursday, New Zealand’s central bank cut rates by 150 basis points. “Following the surprising 175 basis point (easing) by the Riksbank this morning, we now believe you should expect at least 100 bps of easing from the ECB later this morning,” said David Mackie, head of Western European economic research at JPMorgan.

“Now the eyes are on the Europeans, and we’re expecting the ECB to go for 75 basis points,” said Achim Matzke, European stock indexes analyst at Commerzbank, in Frankfurt. “It could help find a bottom for stocks, but to say if the real floor is in sight, it’s too early for that.”

Following the Swedish central bank’s move, euro zone interest rate futures extended gains and two-year yields fell below 2% for the first time in over five years while EONIA futures moved to fully discount a 75 basis point cut from the European Central Bank. “Will ECB become a fashion victim? We have discovered a new central bankers trend: cutting interest rates by 100 bps... These interest rate cuts were huge and unexpected. On this latest news, we expect ECB to cut by 100 bps,” Oddo Securities analysts wrote in a note.

Central banks around the world have been aggressively cutting rates to help shield the global economy from a deep downturn. The FTSEurofirst 300 has lost 44% so far this year, hit by fears of a prolonged recession triggered by a crisis in the financial sector. Recently-hammered banking stocks were among the biggest gainers on Thursday, with the DJ Stoxx banking index up 2%. UBS gained 5.4%, Barclays rose 5.9% and Societe Generale added 4.2%. Credit Suisse surged 7% after saying it was cutting another 5,300 jobs. It also revealed it made a net loss of about CHF 3 billion ($2.5 billion) in October and November.

Food and beverage stocks were also among the biggest gainers, with Nestle up 1.8% and Diageo up 5%. Shares in the embattled auto sector were also on the upside, with BMW gaining 3.4%, Fiat up 2.8% and Renault surging 6.2%.

Around Europe, UK’s FTSE 100 index gained 1.6%, Germany’s DAX index rose 1.9%, and France’s CAC 40 added 1.7%. German steelmaker Salzgitter soared 7.8% after Deutsche Boerse said late on Wednesday the company will join Germany’s top-30 stock market index. (Reuters)