European shares gain as UBS shrugs off losses

European shares rallied yesterday, led by UBS as its announcement of subprime-related losses ignited speculation that the worst of the damage of the credit crunch may be behind the wealth manager.

The FTSEurofirst 300 index of top European shares finished 0.8 per cent higher at 1,563.2 points, up from the day's low of 1,541.8. The index has gained over five per cent so far this year.

UBS, the world's largest wealth manager, was the top weighted gainer, even though it said it would write down $3.4 billion in losses and shake up its management.

"The fact that it's now out in the open, at least we can put some size on the exposure and the hit they've taken, rather than everybody trying to second-guess it," said David Jones, CMC chief markets analyst.

UBS shares were up three per cent, having fallen by more than four per cent earlier in the day.

Citigroup, the largest US bank by market value, also said it would record a 60 per cent fall in third-quarter net income because of the turmoil in financial markets stemming from subprime lending. "Banks that are coming out with more information are settling down a bit," said a fund manger, adding that investors were perhaps expecting no more immediate bad news from those companies.

A rate cut from the US Federal Reserve along with ample injections of liquidity from other major central banks has helped the broader European equities market recover more than 60 per cent of the decline from the 2007 high in mid-July to the eight-month lows of mid-August, even though credit conditions remain tight.

Three-month euro Libor rates fixed at six-year highs yesterday, because of the need to meet cash requirements for the new year period.

Adding a positive undertone was the Institute for Supply Management (ISM), which reported a slowdown in nationwide US manufacturing activity in August, but also a fall in prices, which soothed some concern about inflation as oil prices linger near record highs.

A rally in the gold price to near 28-year highs and platinum near record highs pushed up mining stocks, with BHP Billiton up 3.7 per cent, Anglo American up 2.2 per cent and Rio Tinto up 2.4 per cent.