European Stocks Rebound From Six-Month Low; Mining Shares Rally

European stocks rebounded from a six-month low, led by gains in mining shares, amid speculation equities may have fallen too far on concern about the region’s debt crisis.

Rio Tinto Group led gains in basic-resource producers as base metals climbed in London. Barratt Developments (BDEV) Plc rallied 2.7 percent after JPMorgan Chase & Co. recommended Britain’s biggest homebuilder by volume. Banco Bilbao Vizcaya Argentaria SA (BBVA) led Spanish lenders lower after a regional bank was placed into under the administration of the government’s bank restructuring fund.

The Stoxx Europe 600 Index rose 0.4 percent to 238.02, after tumbling 4.6 percent last week to the lowest level since November. The gauge is trading at less than 15 times the reported earnings of its companies, near the cheapest valuation since 2008.

“Valuations against bonds and against cash are looking attractive,” Ian Harnett, managing director at Absolute Strategy Research in London, told Bloomberg Television. “Once you get some kind of visibility on the political dimensions and some sort of agreement between nations we think the upside is pretty high.”

The Stoxx 600 has erased almost all the gains that followed the European Union’s May 10 unveiling of a 750 billion-euro ($930 billion) loan package aimed at stopping the euro region’s weakest members from defaulting. Since this year’s high on April 15, the gauge has dropped 13 percent amid concern that Europe is divided on how best to deal with spiraling debt levels.

‘Market Is Nervous’

“Valuation investors will come in but won’t come in with all their chips right now,” Mark Tinker, a portfolio manager at Axa Framlington Ltd. in London, said in a Bloomberg Television interview. “The political response to what is going on in Europe is dangerous and that is why the market is nervous.”

National benchmark indexes rose in 4 of the 11 western European markets open today. The U.K.’s FTSE 100 gained 0.1 percent, while Germany’s DAX dropped 0.4 percent. France’s CAC 40 was little changed.

Markets in Switzerland, Austria, Norway, Denmark, Luxembourg, Iceland and Greece were closed for public holidays.

“Sentiment is extremely fragile,” JPMorgan’s London-based strategist Mislav Matejka wrote in a report to clients today. “The volatility continues, but we advise adding to stocks on dips. The markets are of course a lead indicator, but they can sometimes overact as well.”

Rio, Anglo American

Rio Tinto, the world’s third-biggest mining company, climbed 1.7 percent to 2,959.5 pence as copper, zinc, nickel and tin rose on the London Metal Exchange. Anglo American Plc (AAL) gained 2 percent to 2,528 pence.

Barratt Developments increased 2.7 percent to 110.2 pence after JPMorgan upgraded the homebuilder to “overweight” from “underweight.” Rival Taylor Wimpey Plc (TW/) climbed 3.4 percent to 33.86 pence as the brokerage reiterated its “overweight” recommendation. Analysts cited “deep value” for both companies which are “strongly geared” to a housing recovery.

SABMiller Plc (SAB), the world’s second-biggest brewer, rose 2.5 percent to 1,908 pence. China Resources Enterprise Ltd., SABMiller’s Chinese partner, said first-quarter profit increased almost ninefold as its retail business improved and it made money selling some units.

Imperial Tobacco Group Plc, the maker of Davidoff cigarettes, gained 2.1 percent to 1,799 pence. The shares were raised to “buy” (IMT) from “neutral” at Nomura Holdings Inc.

Spanish Banks

BBVA, Spain’s second-largest bank, retreated 2 percent to 8.55 euros after the Bank of Spain put CajaSur, a savings bank in the city of Cordoba crippled by defaults on property loans, under a provisional administrator.

The Bank of Spain is stepping up efforts to shut down or buttress the weakest of Spain’s “cajas,” mutually owned banks that boosted lending more than fivefold during Spain’s economic boom and account for about half the country’s loans. The seizure is the first under a state-financed rescue plan that Standard & Poor’s estimates may cost as much as 35 billion euros, increasing the burden on Spain’s finances as the government tries to reduce its budget deficit.

Banco Santander SA (SAN), Spain’s biggest bank, lost 1.2 percent to 8.51 euros and Banco Popular Espanol SA (POP), the third-largest, lost 2.3 percent to 4.35 euros.

BP Slides

BP Plc (BP/), Europe’s second-largest oil company by market value, dropped 2.7 percent to 493 pence, leading a retreat in energy shares. The company said its costs to date from an oil leak in the Gulf of Mexico have reached about $760 million, or $22 million a day. That compares with an initial estimate of $6 million a day last month.

Europe’s credit crisis is punishing Spanish and U.K. companies as if they were Greek, luring investors with valuations that suggest risk is the same everywhere in the region.

The price-earnings ratio of London-based HSBC Holdings Plc, Europe’s biggest bank by market value, slipped below Greece’s EFG Eurobank Ergasias SA last week, according to data compiled by Bloomberg. Spain’s Banco Santander SA trades at 8 times projected profit, the lowest relative to Athens-based Piraeus Bank SA in more than three years.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.

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