* Euro STOXX 50 up 1.6 pct after 4-1/2 month low
* Banks bounce off 2009 trough on Spanish plan, short
covering
* Hollande’s victory seen as priced in
* Greek election results rock local equities
By Francesco Canepa
LONDON, May 7 (Reuters) – Euro zone blue chips rallied in
thin volume on Monday as banks led a technical rebound,
strengthened by signs Spain was opening the door to using public
funds to aid its troubled lenders.
The Euro STOXX 50 index closed 34.75 points
higher, or 1.6 percent, at 2,283.09, having traded around 90
percent of its 90-day average as the UK and Irish markets were
shut for public holidays.
The index recouped a little over a third of the nearly 100
points dropped last week, when worse-than-expected U.S. economic
data dampened hopes that growth in the world’s largest economy
would drive corporate earnings in crisis-struck Europe.
An initial, negative reaction to election results in France
and Greece had sent it to a 4-1/2 month low of 2,204 early on
Monday, leaving the gauge in oversold territory on the 7-day
relative strength index before a rebound, Thomson Reuters data
showed. (ID:nL5E8G7DE)
The up-move was led by banks, which rose 3.5 percent
after bouncing off a strong technical support at 85, its 2009
low, triggering short covering on the sector, traders and
analysts said.
“We just had a bear trap this morning on the Euro STOXX 50,”
said Nicolas Suiffet, an analyst at Paris-based technical
analysis firm, Trading Central, referring to a situation where
expectations that a rising market trend will prove temporary and
that the previous bear market will resume turn out to be false.
“As long as 2,204 is not penetrated, look for choppy price
action with a bullish bias,” Suiffet added.
Spanish banks were among top gainers, with leaders Banco
Santander and BBVA up 4.7 percent and 5.4
percent respectively as Prime Minister Mariano Rajoy said public
money could be used as a last resort to aid domestic lenders.
Italy’s UniCredit led sector gainers with local
traders citing short covering ahead of the Italian banks’
first-quarter earnings season, due to start this week.
“Trading incomes will come in high so you’re getting some
short covering at these levels,” a Milan trader said. “The move
could be fairly sharp, but perhaps brief.”
Heavyweight financials helped Spain’s Ibex 35 and
Italy’s Ftse MIB outperform their peers as the two
Southern European gauges rose 2.7 percent and 2.6 percent,
respectively.
ELECTIONS
France’s CAC-40 closed up 1.7 percent after a lower
start as investors took the view that president elect Francois
Hollande, who promised to renegotiate Europe’s austerity pact if
elected, would not bring about too drastic policy changes.
“Hollande’s victory was probably priced in and I would doubt
that all the things he said during the elections would be
implemented,” Philippe Gijsels, head of research at BNP Paribas
Fortis Global Markets in Brussels. “Markets will certainly keep
him in line.”
Markets had had two weeks to get used to a Hollande victory
after he took the lead in the first round of the polls in April.
Builders Lafarge and Bouygues were among
top gainers on the CAC-40, rising 4 percent and 3.8 percent, as
investors expected government spending on social housing to
increase under the president, in line with Hollande’s election
pledges.
On the downside, shares in Greek banks fell more than 12
percent, sending Athens General Index down 6.7 percent,
after the only two major Greek parties to have supported an
EU/IMF bailout programme failed to win enough votes to form a
ruling coalition.
This cast doubt on Greece’s ability to avert bankruptcy and
stay in the euro.
“The result of the elections was the worst that could be
expected: it seems highly unlikely that we’re going to have a
government now,” the head of institutional trading at a major
Greek bank said.
“Until (a government is formed), uncertainly will prevail
and some people will feel uneasy and decide to liquidate their
holdings in Greece.”
In a reminder of the other challenges still facing Europe,
the world’s largest chemical maker by revenue, Germany’s BASF
, fell 0.9 percent after saying it believed southern
Europe was in a recession and expected the continent’s economy
to barely grow this year.
