By Eva Kuehnen
FRANKFURT, Jan 22 (Reuters) - European shares jumped nearly
2 percent on Tuesday, led by financial stocks, after a surprise
and aggressive U.S. interest rate cut turned widespread losses
into gains.
The pan-European FTSEurofirst 300 index <> ended 1.9
percent higher at 1,304.37 points, snapping a five-day losing
run.
The U.S. Federal Reserve served up an emergency measure,
slashing its benchmark interest rates by 75 basis points to 3.5
percent, the biggest rate cut in more than 23 years.
The rate cut lifted financial shares in particular; the DJ
Stoxx European banking index <.SX7P> was up 5 percent.
"There is hope that the rate cut will help stabilise banks'
operational businesses," said Markus Steinbeis, head of European
equities at Pioneer Investments.
"I wouldn't overrate it. Caution still rules the long-term
picture," he added.
Switzerland's UBS <UBSN.VX> gained 9.2 percent, Britain's
HSBC <HSBA.L> rose 3,9 percent, and France's BNP Paribas
<BNPP.PA> added 6.3 percent.
In very volatile trading the index fell as much as 4.4
percent early in the day to its lowest level since November 2005
at 1,223.36 points, before the rate cut lifted it as much as 2.7
percent to a peak of 1,314.29 points.
Volumes were high, with 6.4 billion shares traded on
Tuesday, compared with around 5.2 billion on Monday and 4.2
billion on Friday.
Frankfurt's DAX-New Volatility index <.V1XI> briefly hit its
highest level in nearly five years, having risen almost 90
percent so far this year.
"The question now is whether the market trusts the Fed to
solve the problems in the long term," Steinbeis said.
Steinbeis said investors were shifting from defensive stocks
like utilities and telecoms into cyclicals such as retail and
technology.
German utilities E.ON <EONG.DE> and RWE <RWEG.DE> weighed
heaviest on the European benchmark index with declines of 4.2
percent and 5.5 percent, respectively. Deutsche Telekom
<DTEGn.DE> fell 3.1 percent.
Together those shares led Germany's DAX <> 0.3 percent
lower, making it the worst performer among European indexes.
The UK's FTSE 100 index <> rose 2.9 percent, and
France's CAC 40 <> added 2.1 percent.
PICTURE REMAINS FRAGILE
The Fed's interest rate cut took markets by surprise, ahead
of a policy meeting scheduled for Jan. 29-30, and futures
markets expect another rate cut at that meeting.
"It shows how strong the Fed's concerns are, if it not only
brings the rate decision forward but also cuts rates by 75 basis
points. The picture of the U.S. economy remains fragile," Rainer
Sartoris, analyst at HSBC Trinkaus said.
Wall Street traded lower, but much less than had been
expected, given that U.S. markets had been closed on Monday when
European bourses suffered their biggest one-day slide since
Sept. 11, 2001.
By 1734 GMT, the Dow Jones industrial average <> was
down 1.3 percent, the Standard & Poor's 500 Index <.SPX> was
down 1.5 percent, and the Nasdaq Composite Index <> had
shed 2.1 percent.
The rate cut also drove copper prices higher, following an
earlier fall to a three-week low. Mining shares like Anglo
American <AAL.L> and BHP Billiton <BLT.L> rose more than 5
percent, while Xstrata <XTA.L> added 3.2 percent.
(Editing by Will Waterman)
