European markets rally on U.S. rescue plan, short-selling ban - European commentary

(RTTNews) - The European markets rallied to their biggest one-day percentage gain on record on Friday, as investors were relieved that the U.S. government plans to rescue banks from billions of dollars of toxic debts. A temporary ban on short-selling of financial stocks also contributed to the markets’ gain.

U.S. Treasury Secretary Henry Paulson said Friday that the government must set up a program to remove illiquid mortgage-based assets from the balance sheets of financial institutions.

This followed a series of steps that government regulators took on Friday to bolster shaky financial markets. The SEC temporarily banned short selling of 799 financial stocks, the U.S. Federal reserve took steps to boost liquidity further and the Treasury Department set up a program to insure money market mutual funds.

Paulson said he will work with Congress over the weekend to figure out how to relieve the pressure that these bad mortgage loans have put into the financial system.

The announcement follows a meeting on Thursday night that Paulson, along with Fed Chairman Ben Bernanke and SEC Chairman Chris COX, held with leading lawmakers.

No details were announced at that time, but speculation remains that some entity will be formed similar to the Resolution Trust Corp. that helped ease the savings and loan crisis of the late 1980s and 1990s.

The UK Financial Services Authority imposed a temporary ban on short-selling of financial stocks on Thursday.

Crude for October delivery traded up $1.66 at $99.54 a barrel on the New York Mercantile Exchange, by the time the European markets closed. The contract touched as high as $103.64 a barrel earlier in the session, as a U.S. government plan to absorb billions of dollars of banks’ toxic debt encouraged traders to return to the markets. Earlier this week, crude oil had dropped nearly $10 on Monday and Tuesday amid troubles in the U.S. financial sector.

The FTSEurofirst 300 index of pan-European blue chips closed 8.2% higher at 1,150.78 points, while the narrower DJ Stoxx 50 index rose 9.3% to 2,809.38 points.

Around Europe, the U.K.’s FTSE 100 index surged up 8.84% to 5,311.30, while France’s CAC 40 index climbed 9.27% to 4,324.87 and Germany’s DAX index rose 5.56% to 6,189.53.

Banking stocks were among the biggest gainers. HSBC, Europe’s largest bank, climbed 15.5%, while UBS, Switzerland’s largest bank, jumped 31.7% and BNP Paribas, France’s biggest lender, surged up 17.5%.

Royal Bank of Scotland, Britain’s second largest bank, rallied 32%, while Barclays, the second largest, jumped 26.3% and HBOS, Britain’s biggest mortgage lender, gained 28.9%.

Credit Agricole, France’s third largest bank, climbed 26.3%, Sociate Generale, the second largest French bank, added 19.9% and Commerzbank, Germany’s second biggest lender, rose 20%.

Heavily weighted oil stocks gained after crude oil prices rose. BP, Europe’s biggest oil company, climbed 5.5%, while Royal/Dutch Shell, the second biggest, surged up 5.6% and Total, the third biggest, rallied 9.8%.

Mining stocks also climbed after copper prices surged. BHP Billiton, the world’s biggest miner, rose 9.9%, while Anglo American, the second biggest, gained 12.5% and Rio Tinto, the third biggest, added 14%. Copper miner Antofagasta rallied 22.2%.

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