European stocks closed sharply higher Tuesday, after U.S. billionaire investor Warren Buffett inspired a late-session rally by offering to take on $800 billion worth of debt insured by top bond insurers.
Shares of financial firms benefited from news of Buffet’s plan, with the UK's HSBC gaining 4.6 percent, while Germany’s Commerzbank closed 7 percent higher.
Major European indexes were higher in the afternoon after the ZEW Institute’s reading of German economic sentiment came in better than expected for February.
Basic resources stocks again helped markets, and investors cautiously started to commit money to the battered banking sector. Automakers were also doing well, following the positive ZEW numbers.
Miners were among the best performers as investors continued to bet on higher valuations coming from consolidation. Xstrata rejected an informal cash-and-stock takeover offer from Brazil's Vale, according to the Financial Times. Shares of Xstrata closed 0.5 percent higher. Shares of BHP Billiton and Rio Tinto, also locked in a takeover struggle, were both up over 4 percent.
The Dow Jones STOXX Basic Resources index ended 5.3 percent higher.
Meanwhile, the STOXX banking index gained 3.6 percent as investors were looking for bargains.
Some analysts warned that the unpleasant surprises were not likely to be over soon and advocated a long-term view on banks.
Credit Suisse weathered the subprime storm, reporting an 8.5 billion Swiss franc profit in the full-year, but a 49 percent fall in fourth-quarter profit. It also warned a challenging environment could continue into the near future and unveiled a 1.3 billion Swiss franc writedown on its leveraged loans.
The company's stock slipped after the announcement but it later recovered on newly-found enthusiasm for the banking sector, ending 2.5 percent up.
The market was slightly disappointed that there was nothing in Credit Suisse's earnings statement that would suggest an end to writedowns, Dirk Becker, banking analyst at Kepler Landsbanki, said.
"I wasn't aware they had a lot of exposure to asset classes like subprime and CDS (credit default swap)," Becker said. "I would not rule out them reporting further writedowns in 2008."
Insurance stocks continued to struggle after American International Group (AIG) fell sharply on Wall Street Monday. The Dow component said it discovered the value of risky debt in its portfolio had plunged below previous estimates.
Meanwhile, French pharmaceutical Sanofi Aventis raised its dividendafter it posted a better-than-expected net profit of $2.13 billion, boosted by U.S. Plavix sales. The drugmaker said it expects earnings to rise by 7 percent in 2008, sending shares higher by more than 2 percent.
Securitas reported fourth-quarter earnings well below analysts' forecasts. The Swedish security services firm announced a pretax profit of $2.78 million from a loss in the same period 2006.
In the UK, January retail sales rebounded after the worst December in three years, The British Consortium survey showed, suggesting consumer spending may be slowing but it has not come to a standstill.
Meanwhile, Europe’s largest economy showed signs of strength in February as the ZEW survey indicated German investor morale improved for the first time since May 2007.