European shares rise to snap losing run; banks surge

European shares closed higher yesterday, snapping a three-day losing run, with banking stocks surging after a positive Citigroup memo.

The pan-European FTSEurofirst 300 index of top shares rose 5.1 per cent to close at 690.89 points, the biggest one-day percentage gain since December 8.

But the index has still lost 17 per cent in 2009, battered by a banking crisis that has helped to tip several major economies into recession.

"This is a market less sensitive to bad news, and more sensitive to good news," said Bob Parker, vice chairman of asset management at Credit Suisse.

He added: "Markets are focusing on Citigroup. People are now less paranoid about the banking sector. There is a feeling that further write-offs in the banks are going to be minor."

A Citigroup memo helped boost sentiment in the banking sector.

Citigroup's chief executive, Vikram Pandit, said the bank was profitable in January and February and was "confident about our capital strength" after tough internal stress tests, according to the memo.

Citigroup shares, which closed on Monday down 95 per cent on year-ago levels, rose more than 37 per cent on Wall Street.

Back in Europe, banking shares were the standout winners, adding most points to the broader STOXX 600 which rose 5.1 per cent to 165.99.

BNP Paribas, Banco Santander, Barclays, Credit Suisse, Deutsche Bank, HSBC and UBS rose between 9.9 and 20.7 per cent.

Analysts added that possible changes to mark-to-market accounting rules were also helping banking shares.

Insurers also gained, recovering some lost ground. Aegon, after falling 60 per cent in a month, soared 35.2 per cent. Allianz, Aviva, AXA, Legal & General, Prudential, Swiss Re and Zurich Financial rose between 7.9 and 21 per cent.

"We've had some indiscriminate sell-offs in the past week, and now we're behaving more rationally," said Mr Parker. "In insurance, the AIG losses led to a massive sell-off. But most European insurers have more conservative portfolios".

Energy stocks reversed earlier losses, as crude futures held above $47 a barrel. Total, BP, Royal Dutch Shell and Repsol were up between three and 5.2 per cent.

Germany's E.ON fell 4.4 per cent after the world's second-largest utility lowered its 2010 profit expectations some 10 per cent due to the financial crisis, regulation and negative currency effects. Ingo Becker at Kepler Capital Markets said that it was "a huge disappointment" to the market.

Macro indicators remained downbeat. Precipitous falls in French, British and Swedish industrial output, together with a dive in German exports, painted a bleak picture of Europe's economic performance in the first quarter of 2009. Across Europe, the FTSE 100 index ended 4.9 per cent higher. Germany's DAX was up 5.3 per cent and France's CAC 40 was up 5.7 per cent.

Wall Street was sharply higher around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were up between 4.7 and 5.9 per cent.