October 16, 2012 11:07 am

Ibex 35 energised by Madrid rescue report

Banking stocks gained as investors grew more confident that Spain was edging closer to a formal sovereign bailout.

News that the Spanish government was prepared to make a rescue request gave fuel to the rally. The FTSE Eurofirst 300 gained 1.4 per cent to 1,113.14, while its banking sub-index rallied 2.8 per cent to 435.18.

The Financial Times report said Madrid was ready to ask for a credit line from the EU and only external factors were standing in the way of a formal request. That would pave the way for the European Central Bank to begin buying its sovereign debt.

Santander, Spain’s biggest bank by assets, rallied 4.3 per cent to €6.06.

Insurer Mapfre gained 10.2 per cent to €2.23. Bankia, the part-nationalised lender at the heart of Spain’s banking crisis, owns a 15 per cent stake in the insurer.

BBVA gained 6 per cent to €6.31. Overall, Madrid’s Ibex 35 rose 3.4 per cent to 7,940.2.

Shares in Nokia, the mobile handset maker, rallied ahead of its third-quarter results on Thursday. The Finnish company’s shares, which have nearly halved since the start of the year, gained 8.8 per cent to €2.17.

The head of trading at a London-based spread betting company said the buyers “are not your longer-term holders – it’s a speculative move up.”

While Nokia is among the most heavily shorted stocks in Europe, analysts varied widely in their views on the company.

“I would say that the short interest is at maximum level . . . so if we see positive news related to company then we could see a short squeeze,” said Sami Sarkamies, analyst at Nordea.

Nordea recently upgraded its rating on the shares to “buy”, on the grounds that there was more value in the company than the current share price reflected.

Analysts at Goldman Sachs disagreed, reiterating their “sell” rating on the shares. In a note to clients they said they were cautious ahead of third-quarter results.

“We believe a low multiple [shares trade on forward EV/Ebitda multiple of 3 times] is justified given our expectation of substantial cash outflows in 2013, given market share challenges,” the analysts wrote.

Meanwhile, French tyremaker Michelin was one of the worst performing stocks in Europe.

Its shares slid 3.6 per cent to €62.98. CIC Securities cut its rating on the shares from “accumulate” to “hold”.

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