Obama hopes and aid packages lift bourses

European equities enjoyed their best week since the year began as the continent’s banks surged on further government aid packages on both sides of the Atlantic.

Hopes that the Obama administration’s plans to stabilise the US financial sector would restore order to global markets and additional measures from the French and Dutch governments helped the continent’s financial sector to rebound after successive weeks of heavy selling.

BNP Paribas was one of the main beneficiaries. The French bank outperformed over the week after investors took its announcement on Monday of expected 2008 net profits of €3bn and the issuance of €5.1bn of preference shares to the French government as evidence that it did not need a rights issue. BNP surged 17 per cent on Monday and a further 20.7 per cent on Wednesday to close the week at €30.01, a total gain of 40 per cent.

The FTSE Eurofirst 300 index of leading European shares rose 4.4 per cent overall but failed to hurdle over the 800 point mark, settling for the week at 794.12. Germany’s Xetra Dax gained 3.8 per cent to 4,338.35, and the French CAC 40 rose 4.4 per cent to 2,973.92.

Deutsche Bank leapt 21 per cent on Wednesday after rumours in investor newsletter Platow Brief that it had powered to €1bn of pre-tax profits in the first three weeks of the year. Earlier in the week the bank reiterated that it did not require any further government aid. Its shares closed at €20.70, a weekly gain of 22.1 per cent.

ING rose 21 per cent to €6.38 after the Dutch financial group said that the government had agreed to absorb future losses on 80 per cent of its €27.7bn of Alt-A mortgage-backed securities.

Speculation mounted that the German government was set to split up the stricken Hypo Real Estate and establish a “bad bank” to house its toxic assets. On Friday, however, the German government rejected a state-owned bad bank solution, saying it preferred an industry-led plan that could see each bank set up its own bad bank to hold its illiquid assets. These would then be given state guarantees by the government’s bank rescue fund.

Hypo Real Estate fell 18 per cent over the week to €1.28, meaning that it has lost 97 per cent of its market value since May 2007.

Elsewhere, there were some signs that money was coming back into the ravaged Russian market after the rouble-denominated Micex index enjoyed its best week since the last week of November.

Having lost 74 per cent from May 2008 to the start of this year, the Micex was buoyed by gains from energy companies to close up 12.9 per cent at 624.90.

Gazprom Neft, the oil arm of Gazprom, rose 20 per cent over the week to Rbs73.42, while Lukoil put on 17.2 per cent to Rbs1166.98 and Surgutneftegaz closed up 11 per cent at Rbs7.29.

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