European stocks rebound on EU plan to overhaul banks’ crisis

European stock markets closed sharply higher yesterday, bouncing back from sustained heavy losses on hopes European nations will support their banks to prevent the eurozone debt crisis from spreading.

Dealers said comments by German Chancellor Angela Merkel on recapitalising the banks confirmed reports that the European Union was working on such a plan to tame a crisis which claimed its first victim, Dexia bank, this week.

“I think it is justified, if we have a joint approach,” Ms Merkel said.

The news cheered markets which have fallen heavily on deepening gloom that the EU could come up with a plan for concerted action, with Greece’s debt problems now threatening not only the euro but global growth as well.

London’s FTSE-100 index of leading shares jumped 3.19 per cent to 5,102.17 points while in Frankfurt, the DAX soared 4.91 per cent to 5,473.03 points and in Paris the CAC-40 advanced 4.33 per cent to 2,973.90 points.

Other European markets posted similar gains, with Milan gaining nearly four per cent despite a sharp Moody’s ratings downgrade for Italy given its debt and growth problems.

In New York, US stocks were little changed after a dramatic turnaround late Tuesday as news of the possible EU bank action plan came through.

The Dow Jones Industrial Average was up 0.34 per cent at around 1615 GMT, the broader S&P 500 added 0.50 per cent while the tech-heavy Nasdaq Composite gained 1.38 per cent.

News that the US economy added 91,000 jobs in September – better than expected but still too little to bring down unemployment – left investors mulling what to do next ahead of tomorrow’s government report.

If the report “is right, employers are cutting back in a measured fashion and are not acting – at least not yet – as though they fear a new recession,” said Ian Shepherdson, chief US economist at High Frequency Economics.