European shares surged yesterday to their biggest one-day percentage gain on record, as battered banks and insurers gained thanks to temporary bans on short sales of financial stocks and the US government's moves to end the credit crisis.
The FTSEurofirst 300 index closed 8.2 per cent higher at 1,150.78 points, recouping some of the sharp losses from earlier in the week and notching up the biggest one-day percentage gain on record, according to Thomson Reuters data. The benchmark has still fallen 0.9 per cent in a rollercoaster week, and is down 23.6 per cent so far this year.
"We are watching history in the making, a scary one, however, and it seems that the shake-out of the financial industry has not necessarily come to an end yet," said Tim Brunne, an analyst at UniCredit in a research note. In the most recent example of a government entity stepping in to ease fears, the US Treasury Department said it will use $50 billion to back money-market mutual funds whose asset values fall below $1 in another step to contain raging financial turmoil.
In addition the US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend with Congress on a plan to deal with toxic bank assets choking the financial system.
The idea has been compared with the Resolution Trust Corp formed in 1989 to deal with the savings and loan industry collapse.
"It was important for somebody to get the garbage off the banks' balance sheets so that they trust each other more than one or two days," said Giuseppe-Guido Amato, strategist at brokerage Lang & Schwarz.
"Because if not you will have every day new liquidity demands from the banks to the Federal Reserve or the European Central Bank."
Banks were the biggest weighted sectoral gainer on the index, with UBS surging 31.66 per cent, Barclays advancing 29.24 per cent and HBOS jumping 28.91 per cent. The DJ Stoxx European banks index was up 17.46 per cent.
Financial stocks, which were battered this week after Lehman Brothers filed for bankruptcy protection, were also boosted by the temporary imposition of short-selling bans across the world.
The UK Financial Services Authority imposed its ban on the short selling of financial stocks on Thursday, while the short selling of 799 financial stocks is to be halted in the United States under an emergency Securities and Exchange Commission order. National market watchdogs in France, Portugal and Ireland took similar steps.