By Blaise Robinson
PARIS, March 25 (Reuters) - European equities surged 3
percent to a 10-day high early on Tuesday as investors scooped
up battered banking shares after a raised buyout offer for Bear
Stearns <BSC.N> eased worries over financial sector valuations.
By 0910 GMT, the FTSEurofirst 300 <> index of top
European shares was up 2.7 percent at 1,259.59 points, after
rising by more than 3 percent shortly after the open.
The rally, coming after a four-day Easter weekend, followed
strong gains in U.S. stocks on Monday after JPMorgan <JPM.N>
boosted its offer for Bear Stearns to $10 a share from $2. A
surprising rise in sales of U.S. pre-owned homes last month also
lifted optimism that the worst of the housing slump may have
passed.
European banks were the biggest gainers, with UBS <UBSN.VX>
up 6.2 percent, Barclays <BARC.L> up 9.3 percent and UniCredit
<CRDI.MI> up 4.4 percent.
"This could be a temporary relief. To be convinced that this
is the floor, we need more indications that the credit market is
stabilizing," said Arthur van Slooten, strategist at Societe
Generale, in Paris.
"Until that happens, equities will remain under pressure, so
this could be a small rally in a bear market."
Banking stocks have been hammered over the past eight months
as turmoil in the risky U.S. subprime mortgage market forced a
number of financial institutions to unveil massive writedowns.
The DJ Stoxx bank index <.SX7P>, up 4.5 percent on Tuesday,
is down 36 percent from its peak last spring.
Energy shares rose on Tuesday, as oil prices hovered around
$100 a barrel. Total <TOTF.PA> and Royal Dutch Shell were both
up 2.3 percent while BP <BP.L> was up 3.3 percent.
Mining stocks also surged along with base metal prices. Rio
Tinto <RIO.L> gained 2.7 percent, BHP Billiton <BLT.L> added 4.1
percent and Xstrata <XTA.L> rose 3.7 percent.
Around Europe, Germany's DAX index <> was up 2.8
percent, UK's FTSE 100 index <> up 3.1 percent and France's
CAC 40 <> up 3.1 percent.
"Risk indicators are starting to look much better in the
U.S. and Europe as aversion to risk is falling. The arsenal
deployed by the Fed and the Bush administration is helping the
market to regain confidence," said Jean-Francois Virolle, chief
strategist at Global Equities, in Paris.
European credit spreads were tighter on Tuesday, helped by
efforts to support the U.S. mortgage market and following the
increased bid for Bear Stearns.
By 0848 GMT, the Markit iTraxx Crossover index
<ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was
at 543 basis points, according to data from Markit, 50 basis
points tighter than last Thursday.
The investment-grade iTraxx Europe index was at 109 basis
points, a trader said, 23 basis points tighter.
Despite Tuesday's sharp rally, the FTSEurofirst 300 is down
about 16 percent in 2008, hit over the past few months by
worries over a global credit crisis and the prospect of a U.S.
recession.
(Editing by Erica Billingham)
