By Ana Nicolaci da Costa
LONDON, April 2 (Reuters) - European stocks rallied on
Wednesday as hopes that subprime-related losses were coming to
an end offset the impact of comments on the economy from the
Federal Reserve Chairman.
Fed chief Ben Bernanke said the U.S. economy could contract
in the first half of this year, supporting suspicions of many
that it might already be in recession, and unemployment would
move higher.
Despite the bleak outlook, the FTSEurofirst 300 index closed
up 1.2 percent at 1,317.84 points, a five-week closing high.
Rather than fuelling concerns about the fallout from the
credit crisis, a $19 billion writedown by Swiss bank UBS
<UBSN.VX> in the previous session raised hopes that banks were
aggressively cleaning up their books.
This made banks the top performers for the second day
running, with UBS was up 4.9 percent, Credit Suisse <CSGN.VX>
5.8 percent higher, and Commerzbank <CBKG.DE> rising 6.1
percent.
Analysts said people had long wanted banks to recapitalise
and that UBS's writedown represented a willingness to do just
that, making it a welcome relief.
"The immediate reaction to that has been positive because it
puts banks in a stronger financial position than they were in
previously," said Darren Winder, equity strategist at Cazenove.
"And the positive share price reaction I think is leading
investors to speculate whether the same could be expected with
other banks."
European stocks have lost 12.5 percent so far this year as
troubles in the financial sector linked to a crisis in risky
U.S. subprime loans spilled over into the credit market.
"We will reach a point where investors start to focus on the
scope for recovery and start to focus less on the recession
itself," Winder added.
OIL BOOST
Oil stocks also gained along with crude prices after weekly
U.S. inventory report showed a larger-than-expected rise in
crude stocks. BP <BP.L> and Total <TOTF.PA> both surged 1.7
percent.
Also underpinning stocks, the U.S. private sector added jobs
in March, according to a surprisingly optimistic report that
contrasted with Fed chief Ben Bernanke's bleak economic outlook
and more bad news from the factory sector.
Among gainers, Spain's Sacyr Vallehermoso <SVO.MC> rose 5.2
percent after it escaped having to make a forced $12.5 billion
takeover bid for Eiffage <FOUG.PA>, making a possible sale of
its stake in the French public works firm easier.
Eiffage was down 3.1 percent.
Spanish real estate company Metrovacesa <MVC.MC> rallied
more than 16 percent, a jump traders attributed to
short-covering, or buying to cover short positions.
But auto stocks were the worst performers after data showed
a 12 percent drop in U.S. car sales in March, hit by shaky
consumer confidence, high fuel prices and concern that the
housing market downturn could spread into a full recession.
Porsche <PSHG_p.DE> was down 5.2 percent, Daimler <DAIGn.DE>
fell 1.8 percent and Peugeot <PEUP.PA> shed 2.3 percent.
But Volvo <VOLVb.ST> rose 4.6 percent after Morgan Stanley
upgraded the truck maker to "overweight" from "underweight".
(Additional reporting to Jesus Aguado in Madrid; Editing by
Paul Bolding)
