European shares ended higher for a third straight session yesterday as a 50 per cent surge in Lloyds Banking Group boosted the financial sector that has struggled due to heavy toxic debt and massive writedowns.
Optimism that the new US administration was moving quickly to stabilise the ailing banking sector and Wells Fargo's announcement that it was maintaining its dividend and did not need more taxpayer funds also improved sentiment, analysts said.
The pan-European FTSEurofirst 300 index ended 3.2 per cent higher at 810.82 points, but is still down 2.6 per cent this year after plunging 45 per cent in 2008 on a credit crisis and an economic slowdown that threatens to become a slump.
"The greater transparency that we have seen from the banking sector in the course of the last few trading sessions alleviated some of the worst fears in the market and allowed the sector to rally," said Henk Potts, strategist at Barclays Stockbrokers.
British bank Barclays helped the banking sector's revival this week by saying that it had no need to raise capital and remained profitable despite an £8 billion 2008 writedown. Its shares jumped 18.9 per cent yesterday and have more than doubled this week.
Lloyds shares spiked as Citi analyst Tom Rayner said a full nationalisation of the bank would be "unnecessary and inconsistent with the stated aim of government," and upgraded his stance on the shares to "buy".
Royal Bank of Scotland jumped 35.7 per cent, BNP Paribas climbed 20.8 per cent and Deutsche Bank rose 22 per cent. Fortis was up 12.8 per cent after the bank said it had reopened talks with the Belgian government and BNP over the asset sales.
Investors awaited a statement from the US Federal Reserve's monetary policy-setting Federal Open Market Committee later yesterday.
"There are some hopes the conclusion of the FOMC meeting this evening is going to give us further details on what is happening with US quantitative easing and whatever plans there may be for the proposed bad bank," said Jim Wood-Smith, head of research at Williams de Broe.
Across Europe, the FTSE 100 index, Germany's DAX and France's CAC 40 were up 2.4-4.5 per cent.
In the latest sign in recent days that households and financial markets may be developing some resilience to the crisis, surveys showed consumers in France and Germany are shrugging off some of their pessimism while investors looked past the widespread business gloom to buy shares.