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HBOS and UBS spearhead Europe banking surge
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HBOS and UBS spearheaded a surge by European bank shares on Tuesday as a rally by their US peers, a higher offer for Bear Stearns and optimism the Bank of England will provide more funding helped lift the mood across the sector. Shares in Britain's HBOS, Barclays and Royal Bank of Scotland, some of the hardest hit stocks over the last nine months, all jumped over 8 per cent. Switzerland's UBS rallied over 7 per cent, France's Societe Generale jumped 6 per cent and Italy's Unicredit gained more than 4 per cent. By 0920 GMT the DJ Stoxx European banking sector index was up 4.5 per cent at 347 points, around 12 per cent above last week's 3-1/2 year low of 309. "The biggest factor is US financials had big rallies since the close of Europe on Thursday. The fact you've seen a revised bid for Bear Stearns and all the liquidity measures put in place by the Fed last week is translating into very strong share price performance," said Vasco Moreno, director of European research at Keefe, Bruyette Woods. JPMorgan lifted its offer for troubled Bear Stearns Co Inc five-fold, thawing concerns about the depth of Bear's problem and that other investment banks faced trouble. US data also fuelled hopes for a turnaround in the housing market, boosting shares including Citigroup. In response, HBOS shares raced 12 per cent higher to 530 pence, and are now more than 10 per cent above their level before the bank was hit by speculation it faced liquidity problems, which were slammed as "unfounded rumours" by the UK market watchdog. HBOS's revival was helped by news its chief executive and other directors and managers bought 1.4 million shares after last Wednesday's plunge. A meeting between Britain's top banks and Bank of England executives late last Thursday also lifted optimism the central bank could help ease liquidity among banks. "If the BoE is willing to be more flexible with the term, amount and duration of cash it is willing to provide to the sector then this could well be a positive for earnings," said John-Paul Crutchley, analyst at Merrill Lynch, in a note. HBOS and Alliance Leicester, whose shares rose 5 per cent, would be expected to be the biggest beneficiaries from lower funding costs, as both have warned about higher funding this year. Interbank lending rates have ratcheted higher in recent weeks as banks have been wary about lending to each other. Analysts said the steep fall by Europe's bank stocks in the last nine months, reflecting the impact of global financial turmoil and the prospect of falling earnings, lower volume growth and slowing economic growth, had also priced in a lot of bad news already, but the tone remained wary. KBW's Moreno said: "We are starting to see the right signs coming out, but whether this proves to be the end of it for financial institutions is difficult. "We need to see where house prices stabilise and also where earnings and capital for the banks end up over the next two quarters." The DJ European bank index is still down a third from its level at the end of June. (Reuters)
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