Markets overview

European stocks gained three per cent yesterday, as banks stocks rose, tracking a rally on Wall Street on hopes a $700 billion bailout plan to stabilise financial markets would be approved by the US House of Representatives, as in fact it was yesterday evening.

The FTSEurofirst 300 index of top European shares closed three per cent higher at 1,089.38 points. On the week, the benchmark index lost 1.4 per cent.

Recently hammered banks surged, with BNP Paribas gaining 9.4 per cent, Barclays rising 8.9 per cent and Credit Suisse adding 8.3 per cent.

The sector was also buoyed by news that Wells Fargo agreed to buy embattled bank Wachovia Corp, fuelling hopes of more consolidation among banks.

Wells Fargo said it would buy Wachovia for about $16 billion, apparently besting a government-backed Citigroup Inc bid for some of the bank's assets.

The House of Representatives, had voted in favour of the package yesterday. The plan seeks to help purge banks' balance sheets of bad mortgage-related debt and unclog the credit market.

Hopes for the plan eclipsed bleak US jobs data that showed US employers cut an unexpectedly large 159,000 jobs last month - a ninth straight monthly fall in jobs and the deepest in five and a half years, suggesting the US economy may be in recession.

Economists surveyed by Reuters had forecast 100,000 jobs would be cut.

"Let's assume the Bill passes, and it's obviously a big 'if', we think that the stock market will start focusing much more on the economic doldrums and the focus will be less on the financials," said Franz Wenzel, strategist at AXA Investment Managers, earlier in Paris.

"The economic picture doesn't look bright, and stocks will probably continue their rollercoaster ride on the day to day news flow, but underneath the surface, we will see a shift in sectors, with less downbeat sentiment on the financials."

The US Federal Reserve's policy-setting Federal Open Market Committee is next scheduled to meet on October 28-29 but there has been speculation central bankers could coordinate a global rate cut if financial turmoil persists.

Germany's DAX index rose 2.4 per cent, UK's FTSE 100 index gained 2.3 per cent and France's CAC 40 added three per cent.

Shares in German lender Hypo Real Estate jumped 41 per cent on expectations that final details for its €35 billion rescue package have been hammered out.

British Airways sank seven per cent after it said there was some risk to its full-year revenue forecasts as demand for long-haul premium traffic had worsened.

A profit warning from airline services arm John Menzies added to the nervousness.

The FTSEurofirst 300 has lost 28 per cent so far in 2008, hammered by the crisis in the credit market that has prompted financial institutions to unveil massive asset write-downs, forced Lehman Brothers to file for bankruptcy protection and triggered a number of government bailouts.