European stocks climb on support for banks

European shares and the euro rose on Monday as  investors welcomed a Franco-German pledge to shore up European banks in news that coincided with a cross-border dismantling of troubled lender Dexia.

London's FTSE 100 index added 1.43 percent to 5,379.46 points in afternoon trade. The Paris CAC 40 gained 1.53 percent to 3,143.01 points and Frankfurt's DAX 30 shot up 2.29 percent to 5,806.55 points.

The Madrid stock market increased by 0.43 percent and Milan rallied 2.27 percent, despite news before the weekend that Fitch had cut its ratings on Spain and Italy.

The European single currency jumped to ê1.3615 in London foreign exchange deals from ê1.3375 late in New York on Friday. The dollar fell to 76.65 yen from 76.87 yen Friday.

US stocks opened sharply higher on the Franco-German commitment to shore up Europe's banks.

The Dow Jones Industrial Average was up 1.69 percent in the first five minutes of trade. The broader S&P 500 rose 1.96 percent, while the tech-heavy Nasdaq Composite gained 1.75 percent.

The market surge came in relatively slow trade as much of the country, including federal and local governments, were on holiday for Columbus Day.

Asian shares closed mixed with Sydney adding 0.92 percent, while Hong Kong finished flat and Shanghai lost 0.61 percent.

In a meeting Sunday, French President Nicolas Sarkozy and German Chancellor Angela Merkel put on a united front and vowed a response to Europe's debt and banking crisis within weeks.

The deadline for the response is an EU summit now to be held October 23 and will be thrashed out until then in closed door talks.

The pledge came as Greece called Monday for improved debt rollover terms from its private creditors at the end of talks with the EU and the IMF on an audit to unlock fresh loans, a plea sure to send further tremors to troubled banks.

Sarkozy said there would be "lasting, global and quick responses before the end of the month" amid growing fears of another crippling global credit crunch.

The pair's efforts came before Monday's rescue of Franco-Belgian bank Dexia, whose shares were reopened to tradingand immediately crashed by over 36 percent only to fully recover the losses less than an hour later.

"The announcement that Merkel and Sarkozy have reached agreement on how to reinforce beleaguered eurozone banks is certainly adding some support" to stock markets, said analyst Chris Weston at trading group IG Markets.

Other analysts said the pact helped to drive cash towards assets that are deemed a riskier bet, such as equities and the euro.

"Risk assets are in a positive territory... after shrugging off the downgrade of Italy and Spain by credit rating agency Fitch," said Kathleen Brooks, an economist at Forex.com trading group.

"Stocks have been driven higher by expectations of an accord between France and Germany and a concrete deadline -- the end of October -- to get a comprehensive plan together to re-capitalise the banking sector and fundamentally overhaul the economic workings of the currency bloc."

Some commentators however doubted whether the Franco-German pact would resolve the eurozone's raging debt crisis.

"It looks like a false dawn to me," Daiwa economist Chris Scicluna told AFP.

"The Merkel-Sarkozy meeting was of little consequence and it is clear that Germany and France still disagree on many of the key policy issues to be resolved.

"At the same time ... sovereign ratings downgrades for Spain and Italy, together with the news that the takeover of Dexia will cost the Belgian authorities 4.0 billion euros, provide reminders that, beneath (the) surface, financial fragilities remain.

"And with overall economic growth having all but come to a halt, and possibly shift into reverse, this could be the calm before the storm," Scicluna added.

Belgium has agreed to pay 4.0 billion euros ($5.36 billion) for Dexia's domestic consumer-lending unit. It is the second time in three years that Dexia has needed a bailout and comes just three months after it passed EU stress tests.

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