European stocks surged Monday, as investors took heart from a €750 billion ($954.83 billion) rescue package intended to stabilize the single currency and prevent the Greek debt crisis from spreading to other member countries.
Overnight, European Union finance ministers reached agreement on a support plan for nations facing financial meltdown. It will consist of up to €440 billion in loans from euro-zone governments and €60 billion from an EU emergency fund, in addition to €250 billion from the International Monetary Fund.
At the same time, the European Central Bank confirmed it will buy bonds in the secondary market in order to ensure market stability.
“The bailout package is music to investors’ ears and the reaction has been quick and positive,” said Joshua Raymond, market strategist at City Index. “The key worry for the last few weeks is that the Greek debt problems could become contagious and affect other countries within the euro zone that have similar debt problems. The rescue package from the EU and IMF is a firm attempt to draw a line under this uncertainty and looking at the market reaction, it seems to have done the trick.”
The Stoxx Europe 600 Index traded 6.2% higher at 251.96. London’s FTSE 100 Index was up 4.5% at 5353.63, Frankfurt’s DAX was 4.6% higher at 5980.42, and Paris’s CAC-40 Index surged 8.2% to 3670.22. The Athens Stock Exchange was up 9% at 1776.54 and Spain’s IBEX traded 12.8% higher at 10203.30.
In Europe, financial stocks were the biggest gainers, with banks most exposed to Greek debt and those in the periphery nations gathering momentum after last week’s decline in the sector. Shares in Spain’s Banco Santander rose 20%, France’s Societe Generale was up 21%, and Credit Agricole gained 20%, while Italy’s UniCredit added 20% and the U.K.’s Barclays gained 14%. The pan-European Stoxx 600 banks index rose 13% to 210.07.
With the immediate euphoria cooling after a massive support program for debt-troubled euro-zone countries, the euro pared early gains Monday morning to dip below $1.29. The common currency had overnight surged to nearly $1.31, but recently traded 1.2% higher at $1.31.
The 10-year bund futures contract fell sharply and the yield curve flattened on expectation the steps announced will quell some concerns over the financing needs of heavily indebted nations that have hammered financial assets across the globe.
Meanwhile, the yield spreads between some of the peripheral euro-zone countries and German bunds tightened substantially after the measures. The benchmark 10-year Greek bond was yielding 7.82% more than its German counterpart, down from more than 10% on Friday.
“Overall, the deal over the weekend is very welcome. Its size is adequate to the job. We estimate that €640 billion would be needed to provide Spain, Ireland and Portugal with an equivalent amount of support than given to Greece. But, as with every scheme they have come up with since the Council meeting on Feb. 11, a lot of details have to be filled in,” said BNP Paribas.
The ECB said it will intervene in the euro zone’s public and private debt markets to ‘ensure depth and liquidity in those market segments which are dysfunctional.’ Meanwhile, IMF Managing Director Dominique Strauss-Kahn said the IMF was, “ready to support our European members’ individual adjustment and recovery programs through the design and monitoring of economic measures as well as through financial assistance, when requested.”
On top of this, the U.S. Federal Reserve said Sunday that it would revive an emergency lending program used during the financial crisis. The Fed will ship billions of dollars overseas through foreign central banks, including the ECB, so they can, in turn, lend the money out to banks in their home countries in need of dollar funding.
Meanwhile, in the U.K., the Conservative and Liberal Democrat parties have continued to hold talks Monday on a possible power-sharing deal, after lengthy talks Sunday. Seeking to soothe concerns, both parties have sought to stress progress, saying economic stability and reducing the budget deficit were at the center of their discussions.
In Asia, the announcement of the euro-zone rescue package boosted sentiment and lifted stocks. Japan’s Nikkei 225 ended up 1.6%, Hong Kong’s Hang Seng Index rose 2.6% and China’s Shanghai Composite Index gained 0.4%.
Among other assets, spot gold was at $1193.00 per troy ounce, down around $15 from late New York Friday, as safe haven demand for the yellow metal ebbed. In the oil market, the front-month June crude oil future contract was higher, up $2.61 at $77.72 per barrel on Globex.
