Dubai news helps European shares to one-week high

Abu Dhabi's move to provide $10 billion in aid to Dubai World lifted financial shares and pushed European stocks to a third straight session of gains yesterday.

The FTSEurofirst 300 index of top European shares ended 0.8 per cent higher at 1,018.29 points, the highest close since December 7. The benchmark index is up 22 per cent this year and has surged 57 per cent since hitting a record low in early March.

Banks were among the top gainers, with Standard Chartered, HSBC, Barclays, Royal Bank of Scotland, BNP Paribas, Société Générale and Credit Agricole rising between 0.9 per cent and 4.3 per cent.

Deutsche Bank jumped 3.4 per cent as it set its sights on achieving record pre-tax profit of approximately €10 billion ($14.7 billion) from its operating businesses in 2011.

Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 rose 0.7 to one per cent. "Certainly the Dubai news is helping the banking sector. Basically it's something that brings some relief to the sector that has been underperforming over the last weeks," said Gerhard Schwarz, head of global equity strategy at UniCredit in Munich.

"Sentiment is still cautious because a lot of investors are very wary of what could go still go wrong."

Dubai said $4.1 billion of the money received from Abu Dhabi was allocated to property developer Nakheel to repay its Islamic bond maturing yesterday.

The excess funds would be used to help government-controlled holding company Dubai World, which has asked creditors to agree to restructure $26 billion of its debt, up until the end of April 2010, a Dubai government statement said.

The market was also helped by Citigroup's plan to repay the money it owes the US government, including issuing $17 billion of stock immediately, as the bank looks to end the executive pay restrictions that came with the bailout.

Lloyds, however, fell 1.9 per cent after it completed a record £13.5 billion (€14.9 billion) rights issue which ended a turbulent period for the bank and shifted investor focus to a potential government stake sale in 2010.

Energy shares gained ground on news that Exxon Mobil Corp will buy XTO Energy Inc in an all-stock deal valued at about $30 billion (€20.3 billion), in a move that thrusts the US energy giant to the forefront of North America's fast-growing natural gas industry.

BP, Royal Dutch Shell, BG Group, Tullow Oil, Repsol, Total and StatoilHydro added 0.6 to 3.2 per cent.

Economic data also helped the market. The Bank of Japan released its closely watched tankan survey of corporate activity, showing the headline index for big manufacturers' sentiment was minus 24 this month, improving from minus 33 in the previous quarterly survey in September.

Analysts remained positive on the stock market's prospects.

"Overall, many of the factors that have driven equity markets higher in 2009 remain in place - loose monetary policy, low yields on cash and governments bonds, attractive valuations and cash on the sidelines waiting to be invested," said Mick Gilligan, head of research at Killik & Co.

Cadbury was up 0.6 per cent. It teased shareholders with the prospect of rival bids and promised bigger dividends and stronger growth as it again knocked back a £10 billion (€11.5 billion) offer from Kraft Foods.

French insurer AXA rose 2.4 per cent. Australia's AMP Ltd and AXA raised their bid for AXA Asia Pacific Holdings by 16 per cent to $11.7 billion, €7.9 giving the takeover target a week to agree to the new bid.

Investor appetite for risk assets like equities was higher, with the VDAX-NEW volatility index falling 2.3 per cent to hover near a 15-month low. The lower the index, which is based on sell and buy options on Frankfurt's top-30 stocks, the higher the market's desire to take risk.