European stock markets soared Thursday, led by the heavily weighted banking sector, as investors reacted with relief to the euro zone's agreement on measures to stem the region's deepening debt crisis.
The Stoxx Europe 600 index for the banking sector jumped 7.1%. French banks led the rally, as they have been weighed down by worries over the extent of their Greek debt exposure. Shares in Crédit Agricole climbed 15%, BNP Paribas added 16%, and Société Générale was 11% higher.
The benchmark Stoxx Europe 600 index was up 3.0% at 247.99. London's FTSE 100 index was 2.5% higher at 5692.59, Frankfurt's DAX had gained 4.4% to 6280.23, and Paris's CAC-40 had added 4.8% to 3322.86.
Goldman Sachs raised its three-month forecast for the Stoxx Europe 600 index to 255, saying that while the proposals remain vague, should they be developed into a plan that offers a credible roadmap to contain and resolve the crisis, significant upside exists to European equities from current levels.
According to the agreement, Greek bondholders will voluntarily write down 50% of their holdings, though the details still have to be worked out with banks. Euro-zone governments will also mobilize €30 billion to finance guarantees for the private sector as part of the debt-reduction deal, and agreed to expand the firepower of the European Financial Stability Facility, the euro zone's bailout vehicle, by as much as four or five times to about $1.4 billion.
Banks are also expected to raise core tier 1 capital ratios to 9%, and about 70 banks across the euro zone will need to raise about €106.4 billion in new capital.
"We view such an injection of capital into the banking sector positively, although until sovereign markets stabilize, the threat to the euro area banking system will persist," Goldman Sachs said.
Italian and Spanish bond yields fell sharply. The yield on the benchmark 10-year Italian bond yield fell by 0.12 percentage points to 5.79% and the 10-year Spanish bond yield fell by 0.19 basis points to 5.28%.
Corporate news Thursday also gave a lift to markets. Shares in Sweden's Telefon AB L.M. Ericsson rose 4.9%, after the group ended a 10-year tie-up with Sony, by selling its 50% share in the Sony Ericsson joint venture to Sony.
Shares in Bayer gained 4.2%, after it confirmed its full-year earnings forecast, while BASF added 5.0%, as it backed its outlook for higher year-on-year sales and earnings in 2011. Royal Dutch Shell shares rose up 1.0% after its adjusted profit for the third quarter rose by a better-than-expected 42%.
Turning to the foreign-exchange markets, the euro jumped to a seven-week high against the dollar as investors expressed relief that the region's leaders had finally come to an agreement to attempt to resolve the sovereign debt crisis.
The euro traded at $1.4027 against the U.S. dollar, from $1.3906 late Wednesday in New York, after having reached a new high of $1.4038. The U.S. dollar was at ¥75.82 from ¥76.16.
The price of spot gold was at $1,715.49 a troy ounce, down $5.70 from its New York settlement on Wednesday. December Nymex crude-oil futures were up $2.37 at $92.57 per barrel, while the Brent futures contract for the same month was at $110.88, up $1.97.
On the data front, the main source of interest will be the release of the U.S. third-quarter gross-domestic-product figures at 8:30 a.m. EDT.
"We expect the U.S. to announce preliminary GDP growth of 2.5% in 3Q," said Barclays Capital. "This is consistent with market expectations, but should nevertheless set a reasonably supportive backdrop for the more substantive European policy announcements likely to emerge in the days to come."
read more: Olympus Wealth Management
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