Europe Markets

Banks, Miners Lead Euro Shares Higher


European shares advanced on Monday, led by financials such as Swiss bank UBS amid hopes that asset writedowns will soon have been left behind, and miners such as Xstrata thanks to higher metals prices.

The FTSEurofirst 300 index of top European shares ended unofficially 0.7 percent higher at 1,339.45 points – its highest close since Feb. 27 -- having risen for the fourth session in a row.

With UBS up 3.2 percent and rival Swiss bank Credit Suisse 2.7 percent higher, the DJ Stoxx bank index was the day's top sectoral performer with a gain of 1.1 percent followed by insurance, up 1.06 percent.

Among mining stocks, Xstrata rose 2.4 percent and Antofagasta gained 2.6 percent lifted by higher copper prices. The DJ Stoxx basic resources index, which includes miners rose by just over 1 percent.

"We think this is still a bear market rally and remain convinced that U.S. earnings will take a hit later this year," said AXA Investment Managers strategist Franz Wenzel.

"It all started with the bailout of Bear Stearns and the fact that a systemic crisis had been averted, and then commodity prices rose and things appeared a little less bleak on U.S. GDP," he said.

"But the macroeconomic data is still weakening, there's no signs of stabilization, and we expect another leg down in the summer."

Banks, the sector worst hit by a credit market crisis sparked by a collapse last year in the risky U.S. subprime mortgage market, recovered some ground.

BBVA gained 1.7 percent after quarterly net profit met forecasts as a strong showing in Latin America and corporate banking made up for a slowdown at home.

JPMorgan said in a note that the worst of writedowns was over and that there will be no additional capital raising needed in continental European banks.

However, it remained "neutral" on the sector.

"Unfortunately we are already looking at the next hurdle as consensus earnings need to be cut post Q1 2008 results before we would go overweight," it said.

"We remain neutral with a bottom-up stock bias towards high cashflow generative banks with relatively low traditional credit risk."

The FTSEurofirst is up nearly 6 percent in April but down 18 percent from a 6-1/2 year high hit last July.

Miners Gain, Electrolux Slips

Mining stocks notched up strong gains, tracking metal prices higher.

Antofagasta rose 2.6 percent, Kazakhmys 3.7 percent and Vedanta 1.3 percent.

The world's second-biggest home appliances maker Electrolux slipped 0.3 percent after saying its full-year profit would be at the low end of its forecast range.

Later in the week, investor focus moves to the Federal Reserve, due to announce a rate decision on Wednesday.

A majority of economists forecast a 25 basis-point cut by the Fed, but there is still a chance of no cut, based on fed funds futures.

Not since August has there been any question whether the Fed would cut rates.

Fortis Bank strategist Philippe Gijsels said that the Fed meeting could provide a negative trigger that could crimp the current upswing.

"With inflation running high, the Fed may be less inclined to continue cutting rates and become a bit more hawkish," he said.

Whitbread rose 3.1 percent after the owner of Britain's biggest hotel and coffee-shop chains reported a rise in annual pretax profit and said the start of this financial year had been encouraging.

UK lender HBOS closed 0.3 percent lower despite talk of a rights issue.

The Financial Times reported that HBOS is finalizing plans to tap investors for fresh capital of up to 4 billion pounds in a rights issue to bolster its capital base, adding that the mortgage lender faced up to 3 billion pounds of writedowns.