Banks shares lead market recovery

European stocks rebounded from a two-month low yesterday and Spanish bonds rose after an ECB official signalled that the bank may revive its bond-purchase programme.

The markets were encouraged by the declaration by Spanish prime minister, Mariano Rajoy, that Spain will not need a bailout.

Mr Rajoy, speaking in Madrid, said Spain faces a “huge” task generating jobs and growth as it looks to rein in its budget deficit. He said he wants to make it “as clear as day” Spain won’t need a bailout.

ECB executive board member Benoit Coeure triggered speculation that the bank will revive its bond purchase programme to lower Spain’s borrowing costs. Spanish “market conditions are not justified”, Mr Coeure, who heads the ECB’s market operations division, said.

“Will the ECB intervene? We have an instrument, the securities markets programme, which hasn’t been used recently but it still exists.”

Banking stocks responded well to the hint. HSBC, Europe’s biggest bank, said there is a “glimmer” of light for European bank earnings as it upgraded the industry to overweight for the first time in four years.

European bank earnings may have “bottomed” as long as the region’s economy does not contract by more than 2% this year, HSBC analyst Peter Sullivan stated yesterday.

Deutsche Bank, Germany’s largest bank, added 2.3% to 34.48. Barclays gained 2.8% to 212.1p. Italian banks gained, with UniCredit, the country’s biggest bank, adding 5.5% to €3.21 after falling 8.1% yesterday. Intesa Sanpaolo also rose 5.5% to €1.20.

Santander, Spain’s largest bank, added 2% to €5.30, while Banco Bilbao Vizcaya Argentaria rose 3.8% to €5.60.

In Britain, the FTSE 100 index closed up 39.19 points, or 0.7%, reversing a downward spiral in which the index surrendered almost all its remaining 2012 gains after it fell 2.2% on Tuesday, its second biggest percentage fall of the year.

“This appears to be a normal trading bounce following a sell-off mainly driven by bargain-hunting and short covering. Current downtrends remain intact,” said Dean Stevens, a trader with Galvan.

The German DAX index increased by 1% to 6674.73. The French CAC was up 0.62% and Spain’s IBEX gained nearly 2% in trading. The ISEQ was down marginally.