European stocks extend rally on bank gains
European stock exchanges extended a rally yesterday, powered by further gains in the banking sector and despite a disappointing report on US consumer confidence.
The advance in Europe followed a generally positive performance in Asia, where share prices firmed after Wall Street led the way on Monday.
US stocks edged higher again in early trading yesterday but reversed direction on news that US consumer confidence had deteriorated in the face of concerns over unemployment and business conditions.
The Conference Board, a business research firm, said its consumer confidence index, which declined sharply in June to 54.3 points fell further to 50.4 points in July.
Most economists had expected the index to fall to 51 points in July.
"Consumer confidence faded further in July as consumers continue to grow increasingly more pessimistic about the short-term outlook," said Lynn Franco, director of The Conference Board's consumer research center.
"Concerns about business conditions and the labour market are casting a dark cloud over consumers that is not likely to lift until the job market improves," Ms Franco said.
In London, the FTSE 100 index added 0.27 per cent to close at 5,365.67 points while in Paris the CAC 40 climbed 0.83 per cent to 3,666.40 points. The Frankfurt DAX gained 0.21 per cent at 6,207.31 points.
Elsewhere, Milan rose 1.62 per cent, Madrid 1.32 per cent and the Swiss Market Index 1.22 per cent.
Action in Europe was driven by banks, as it had been on Monday. The sector continued to draw strength from recent stress tests showing that the European banking industry was financially sound overall.
In addition, analysts said regulators had succumbed to intense lobbying from banks and watered down proposals for new international standards aimed at bolstering the banking system so it could better cope with any new crisis.
The Basel Committee on Banking Supervision's new rules - dubbed Basel III - would be more relaxed on the quality of capital and the amount of assets required to back lending than earlier planned.
The new standards, which were broadly agreed by top central bankers and regulators on Monday, would also give commercial banks more time to implement the new rules than envisaged initially.
"The Basel committee was less severe than the markets had feared," said Yves Marcais, a trader with Global Equities.
"It's not the moment to be too strict on banking standards when economic activity needs support."
French banks soared, Credit Agricole rising 10.14 per cent and Société Générale 10.59 per cent.
It was the same story in Frankfurt, where Deutsche Bank closed with a gain of 4.49 per cent, and Madrid, where Banco Popular jumped 7.68 per cent.
Spanish banks, five of which were deemed to have been under-capitalised and therefore failed the stress tests, have been under heavy pressure in recent weeks and have had trouble borrowing funds on the interbank market.
But Banco Popular finance director Jacobo Gonzalez Robatto said: "We are seeing positive signs that the interbank market is beginning to ease," an indication of greater confidence in Spanish banks.