Optimism that Greece would approve austerity measures needed to unlock bailout aid and stave off a debt default fuelled a rebound in banking shares and European stock markets yesterday.
London’s benchmark FTSE 100 index of top shares rose 0.78 per cent to 5,766.88 points, while in Frankfurt the DAX gained 0.88 per cent to 7,170.43 points and in Paris the CAC 40 climbed 1.46 per cent to 3,851.89 points.
“European markets have pushed higher this afternoon on the back of a rebounding banking sector, despite violence in Athens as Greece embarks on a 48-hour strike in protest at the probable passing of the forthcoming stringent austerity budget,” said CMC Markets analyst Michael Hewson.
Greek anti-riot police fired tear gas at 10,000 protesters outside Parliament after youths hurled firebombs as a general strike against the government’s latest austerity measures turned ugly.
Greece’s Socialist Prime Minister George Papandreou is trying to hold together a narrow five-seat majority to approve in votes due today and tomorrow a €28.4-billion austerity programme and state sell-offs worth up to €50 billion.
Approval of the measures is needed to unlock €12 billion in funds from the bailout package Greece negotiated last year with the EU and IMF, as well as for negotiations to proceed on a second bailout to ensure Greece has sufficient support through 2014.
“Optimism that Greece would step back from the brink has seen risk appetite return with banks pulling back some ground in the face of some of the losses seen in recent days,” Mr Hewson said.
The Athens stock market shared in the optimism, jumping 2.66 per cent.
Elsewhere in Europe, Lisbon drifted up 0.02 per cent, Swiss stocks added 0.19 per cent, Amsterdam rose 0.42 and Madrid gained 0.65 per cent.
Brussels bucked the trend to lose 0.48 per cent.
Many fear that a default in Greece could lead to similar problems in other eurozone economies and potentially cause another global financial crisis.
Shares in European banks, many of which are exposed to Greek debt, have been hit hard in recent days as the Greek crisis intensifies.
Apparent progress on a plan where the banks would roll over a huge portion of Greek debt into new 30-year bonds, giving Athens some breathing space, improved sentiment.
So did talk of a European officials working on a “Plan B” to save Greece from a default if lawmakers refuse the austerity measures, although European Union economic affairs chief Olli Rehn yesterday firmly denied such reports.
In Germany, Commerzbank gained 4.58 per cent while Deutsche Bank rose 2.18 per cent.
French banks Credit Agricole jumped 3.56 per cent, Société Général 3.03 per cent and BNP Paribas 1.93 per cent.
US stocks rallied after a closely-watched index of the US housing market showed that home prices rose from March to April, giving beleaguered investors some reason to cheer.
The Dow Jones Industrial Average was up 0.87 per cent at 2,714.21 points at 1600 GMT. The broader S&P 500 rose 0.88 per cent to 1,291.33 points, while the tech-heavy Nasdaq Composite gained 0.96 per cent to stand at 2,714.21 points.
The gains came after the S&P/Case-Shiller Home Price Indices showed the first month-on-month uptick in US housing prices since July, offering hope that the housing market – a key pillar of the economy – might be bottoming out.
Average home prices in 20 major cities rose 0.7 per cent from March to April, the monthly report showed. But they remained four per cent below their April 2010 level, reflecting the deeply depressed state of the market.
Growing optimism that European officials are close to a plan to help Athens solve its debt crisis boosted most Asian stocks yesterday.
Tokyo rose 0.74 per cent, Sydney gained 0.21 per cent, Hong Kong ended slightly higher, and Shanghai ended flat. However, Seoul pared early gains to close down 0.36 per cent.