Euro Shares End Higher as Commodities Gain
European shares rose on Monday as commodities surged on a near $600-billion Chinese economic stimulus plan, though stocks ended well off day highs on doubts about whether the plan was enough to avert a sharp global slowdown.
The FTSEurofirst 300 index of top European shares closed up 0.9 percent at 922.48 points, below the day's high of 945.55 points.
This was the eighth day of gains in the last 10 for the pan-European benchmark.
China approved a $586 billion government spending package and announced a shift to "moderately easy" monetary policy despite having already made three interest rate cuts since mid-September.
However, Peter Dixon, strategist at Commerzbank said that the "rebound was because of oversold markets over the past few weeks." "While the China stimulus could be perceived as positive for the market, it is really a double edged sword," he said.
"If it works then it could mean China's economy could grow fairly rapidly. But, what it also means is that the economy has been weaker than anticipated prior to this event," he said.
"The question has to be raised if this stimulus package is really going to help drive the export-led industry which Europe needs to drive corporate activity. The jury is out. The initial optimism may be overdone," he said.
Commodities were the biggest movers on the index. Oil rose more than 5 percent, fuelled by hopes that plans around the world to lift growth could avert recession and by Saudi Arabia's intention to cut crude supplies to Asia in December.
BG Group, BP, and Total were up 0.9-3 percent.
Miners were higher after copper rose 8.3 percent on China's spending plan. Anglo American, BHP Billiton, Rio Tinto and Xstrata were 8.6-11.6 percent higher.
"Although there are questions on whether the stimulus plan will help the overall economy, commodities were up primarily because of the China effect," said Dixon.
"It is reasonable to assume the stimulus package from the Chinese authorities will help the sector. If China's growth is anywhere north of 7-8 percent this will help put a floor on demand and help the sector perform strongly."
"China is a big resource user and as long as growth holds up so will commodity demand," said Dixon.
Other beneficiaries of the China effect were engineers with ABB, Alstom and Siemens gaining 3.9-12.9 percent.
ABB has benefitted from heavy investment in power infrastructure in emerging economies such as China and India, fuelled by economic growth there.
Banks Under Pressure
Banks were the biggest losers on the index. Spain's Banco Santander fell 5 percent after the group launched a shock $9.2 billion rights issue to shore up its capital and said it had postponed its planned asset sales due to poor market conditions.
HSBC lost 1.5 percent after the company said its profits in the nine months to the end of September were lower than the same period of 2007, but by less than the 28 percent drop reported for the first half.
BNP Paribas, Standard Chartered and Royal Bank of Scotland were down 4.2-4.7 percent.
Elsewhere, food retailers were in the doldrums.
Tesco, the world's No. 3 retailer, was 5.9 percent lower after it reported a dip in underlying sales in South Korea, its biggest market outside Britain, providing further evidence a consumer downturn in the United States and UK has gone global.