ECB’s 530 bln euro funding moves European shares up

ECB’s 530 bln euro funding moves European shares up

LONDON - Reuters
ECB’s 530 bln euro funding moves European shares up

ECB President Mario Draghi arrives at a Eurogroup meeting at the European Union council headquarters in Brussels.

European shares were higher yesterday after the ECB provided 530 billion euros ($711 billion) of cheap funding for banks, reinforcing investors’ optimism that more credit will flow to businesses and government borrowing costs will ease further. 

The European Central Bank’s Long Term Refinancing Operation (LTRO) has been a major factor behind the rally in European equities since the turn of the year. 

A total of 800 banks borrowed money at the tender, the second round of three-year funds, with demand exceeding the 500 billion euros expected by traders polled by Reuters. 

“The markets are interpreting this positively, focusing on the liquidity aspect. The initial reaction will be to push up the banks and other associated high-beta sectors,” said James Buckley, a London-based fund manager at Baring Asset Management which has 30 billion pounds ($47.5 billion) under management. 
“Near-term fears about capital adequacy have receded. We are seeing a continued downward trend in peripheral European bond markets.” 

At 12 GMT yesterday, the FTSEurofirst 300 index of top European shares was up 0.4 percent at 1,080.61 points, taking its gains for 2012 to 7.9 percentEurozone banks were among the gainers, up 1.2 percent, extending the sector’s gain this year beyond 14 percent. 

Miners also rose, as copper prices hit two-week highs. The STOXX Europe 600 Basic Resources Index was up 0.7 percent. 

Buckley said that, over the next few months, European shares could regain the highs of 2011, about 10 percent up from current levels. 

He said cyclical stocks would continue to outperform, and he was maintaining a preference for selected industrials and banks. 

He added that in the short term people might “park some money” in sectors such as telecoms and utilities, which have underperformed in 2012.

Strong consumer confidence and labour data from the United States, the world’s biggest economy, has helped to keep investors optimistic about the prospects for European equities, even as the euro zone debt crisis has taken its toll.