European stocks rebounded yesterday as Greece made another attempt to form a pro-bailout government, while Spanish shares soared after Madrid stepped in to support the banking sector by nationalising a top lender.
London’s benchmark FTSE 100 index of top companies closed up 0.25 per cent to 5,543.95 points, while in Paris the CAC 40 added 0.37 per cent to 3,130.17 points and in Frankfurt the DAX 30 climbed 0.66 per cent to 6,518 points.
In foreign exchange trade, the European single currency edged up to $1.2959 from $1.2932 late in New York on Wednesday.
“Equity markets have had a more stable foundation today after the decline of recent days as investors await new developments from Europe, particularly in Greece and Spain,” said Michael Hewson, a senior market analyst at CMC Markets.
Madrid’s IBEX 35 index jumped 3.42 per cent to 7,045.7 points, one day after slumping 2.77 per cent to its lowest level since 2003. Dealers said Madrid was boosted after Spanish Prime Minister Mariano Rajoy’s government announced on Wednesday that it would partially nationalise the fourth-biggest listed bank, Bankia.
The conservative administration had previously refused to countenance the use of public money to rescue the banks, and is due to detail more measures to shore up the sector today.
Shares in Spanish lenders rose on optimism that the government was determined to clean up bank balance sheets, many of them awash with risky loans extended during a property bubble that collapsed in 2008.
Santander, the eurozone’s largest bank by capital, climbed 5.02 per cent to €4.875 while rival BBVA, the number-two bank, advanced 5.11 per cent to €5.266.
But Bankia shares tumbled, slumping 3.62 per cent to €2.05.
“The U-turn by Rajoy about bailing out the banks increases the likelihood that the Spanish government may be open to further bailouts,” noted Mr Hewson. However, he warned “there are risks, given the deteriorating economy in Spain, and (this) could well leave the sovereign vulnerable to a ratings downgrade.”
Spanish 10-year bond yields, which recently shot back above the six per cent level at which economists say it becomes difficult for governments to borrow sustainably, fell back yesterday to 5.939 per cent from 6.051 per cent on Wednesday.
In Athens, Greece’s socialist leader headed into make-or-break talks in a bid to form a coalition government and stave off repeat elections.
Evangelos Venizelos, who as Finance Minister supervised debt-ridden Greece’s €240 billion EU-IMF bailout, is the third leader to attempt to form a government since weekend polls delivered a strong message against austerity.
Meanwhile, the European Union is sending a strong message that Greece must honour its rescue conditions of budget cuts and reforms.