By Sitaraman Shankar
LONDON, March 5 (Reuters) - European shares snapped a
five-day losing streak on Wednesday, powered higher by soaring
commodity prices, hopes of an imminent bailout for bond insurer
Ambac and encouraging U.S. service sector data.
The pan-European FTSEurofirst 300 <> ended up 1.66
percent at 1,301.17 points, still leaving it down nearly 14
percent so far this year.
Banks and commodity stocks were the top-weighted gainers.
HSBC <HSBA.L> rose 2.5 percent, HBOS <HBOS.L> 5.7 percent,
Societe Generale <SOGN.PA> 3.3 percent and BNP Paribas <BNPP.PA>
2.5 percent.
Oil hit a new record at $104.56 a barrel after a large,
unexpected fall in U.S. crude stocks and heightened tensions in
South America. Index heavyweight oil stocks BP <BP.L>, Total
<TOTF.PA> and Royal Dutch Shell <RDSa.L> by 1.7 to 2.2 percent.
Miners tracked copper prices higher. Anglo American <AAL.L>
rose 3.3 percent, Kazakhmys <KAZ.L> 5.4 percent and Vedanta
<VED.L> 3.2 percent as copper rose to its highest since May
2006.
The U.S. service industry shrank for a second month in
February, though at a slower pace. The Institute for Supply
Management's non-manufacturing index came in at 49.3, above the
record-low 44.6 in January.
"This takes some of the intense recession fears out," said
NCB Stockbrokers investment strategist Bernard McAlinden, adding
that the bond insurer issue was part of a broader process of
accounting for losses related to a meltdown in subprime
mortgages, which has driven banks to take massive writedowns.
"The subprime attribution process is making good progress,
with $180 billion owned up to. That leaves a fat tail, but it
will probably be thinly spread across the world," he said.
McAlinden said he preferred financial institutions with
diversified portfolios such as German insurer Allianz <ALVG.DE>,
French bank Credit Agricole <CAGR.PA>, Italian lender UniCredit
<CRDI.MI> and German groups Postbank <DPBGn.DE>, Commerzbank
<CBKG.DE> and Munich Re <MUVGn.DE>.
Credit Agricole gained 5.8 percent as dealers said relief
that France's biggest retail bank was not planning any big
acquisitions outweighed concerns over its fourth-quarter loss.
Across Europe, Germany's DAX <> jumped 2.1 percent,
France's CAC 40 <> rose 1.7 percent and Britain's FTSE 100
<> advanced 1.5 percent despite a clutch of stocks going
ex-dividend.
FOCUS SHIFTS AFTER AMBAC
After European markets closed, shares in Ambac were halted
with news pending and a person briefed on the matter said it was
set to announce a capital infusion.
Investors' focus will next shifts to rate decisions from the
European Central Bank and the Bank of England on Thursday.
NCB's McAlinden said he expected the ECB to stay put at 4
percent, noting that Eurozone services data was not weak enough
to push the ECB into action but also that the bank would have to
be "cautious about not looking too hawkish at the same time".
A Reuters poll last week showed economists expect the ECB to
cut rates twice this year, but the chance of an imminent move
looked less likely with growth resilient and inflation high.
While the ECB has held its fire, the U.S. Federal Reserve
has served up 125 basis points in cuts so far this year and is
expected by many economists to provide another big reduction on
March 18.
Its cuts in January helped spark a rise in global stocks,
termed a bear market rally by many analysts.
Among other major movers, British drugs group
GlaxoSmithKline <GSK.L> fell 2.6 percent after U.S. health
officials said they had requested more information from the
company and other makers of asthma drugs to evaluate safety.
The euro hit a record high against the dollar at above
$1.53, a move that analysts say will hurt European earnings.
"A strong euro versus both the U.S. dollar and the British
pound suggests that regionally U.S. equities should continue
outperforming European ones, and that within Europe, UK should
outperform the eurozone," JPMorgan said in a research note.
"In relative terms, every 1 percent strengthening of the
euro versus the dollar points to U.S. earnings beating European
ones by 0.25 percent, on our estimates." JPMorgan said.
(Additional reporting by Peter Starck in Frankfurt; Editing by
David Holmes)
