European Stocks Gain for Second Day on China Support Speculation

European stocks rose for a second day amid speculation China may still buy the region’s government bonds even after Premier Wen Jiabao said indebted countries must not rely on bailouts.

Finmeccanica SpA (FNC) soared the most in 13 years on a report that Italy’s biggest arms company may sell railway units to General Electric Co. Next Plc (NXT) rallied to a record as earnings increased. Societe Generale (GLE) SA slid 2.9 percent after Moody’s Investors Service downgraded the French bank’s credit rating.

The benchmark Stoxx Europe 600 Index advanced 1.5 percent to 224.17 at the 4:30 p.m. close in London. The gauge erased an earlier loss of as much as 1 percent after Caijing magazine reported that China is still willing to buy bonds of nations hit by the debt crisis, citing Zhang Xiaoqiang, a vice chairman of the National Development and Reform Commission.

The comments from Zhang “may have eased worries about the European debt crisis,” said Alexander Kraemer, a cross-asset strategist at Commerzbank AG in Frankfurt. “We may also see short covering ahead of the triple witching on Friday” when futures and options on European equity indexes expire.

National indexes rose in 16 of the 18 western European countries. Germany’s DAX advanced 3.4 percent, the U.K.’s FTSE 100 gained 1 percent and France’s CAC 40 climbed 1.9 percent.

European stocks almost erased their gains in afternoon trading as Austria delayed a parliamentary vote on an overhaul of the European bailout fund, causing confusion among investors. They later rebounded.

Debt Crisis

The Stoxx 600 has plunged 23 percent from this year’s peak in February as the debt crisis spread from Greece to the larger economies of Italy, Spain and France. Greek Prime Minister George Papandreou is holding a conference call with German Chancellor Angela Merkel and French President Nicolas Sarkozy today amid increasing speculation that Greece will default. Spain is scheduled to sell debt tomorrow, after demand fell at an auction by Italy yesterday.

“A Greek default is not going to ripple the same way and in the same magnitude that we saw in 2008,” Paul Chew, head of investments at Brown Advisory in Baltimore, said in an interview in London. “We got into the current situation in a much better state than in 2007. That makes us confident that any crisis in Greece is not going to snowball.”

Wen, speaking at the World Economic Forum in Dalian, China, signaled that developed nations should cut deficits and create jobs rather than relying on China to bail out the world economy. Stocks gained in the U.S. on Sept. 12 after the Financial Times reported that Italy aims to sell “significant” quantities of bonds and stakes in strategic companies to China.

‘Houses in Order’

“Countries must first put their own houses in order,” Wen said. “Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent the further spread of the sovereign debt crisis in Europe.”

Finance ministers from Brazil, Russia, India and China will meet on Sept. 22 to discuss ways to help Europe overcome its debt crisis, R. Gopalan, secretary in the Department of Economic Affairs in the finance ministry, said in New Delhi.

A Commerce Department report today showed U.S. retail sales unexpectedly stagnated in August, falling short of an average forecast for a 0.2 percent increase in a Bloomberg survey of 83 economists.

Finmeccanica Jumps

Finmeccanica soared 17 percent to 5.26 euros, the biggest gain since January 1998. The company may be close to an agreement to sell its AnsaldoBreda train-making division to General Electric, il Tirreno reported, citing a city of Pistoia politician, Alessio Bartolomei. Ansaldo STS SpA (STS) jumped 20 percent to 6.62 euros as the newspaper said GE may also be interested in the railway-technology unit, citing no one.

Finmeccanica said it’s still reviewing its strategy for the transportation business and it plans to communicate with the market after a review has been completed.

Next rallied 6.3 percent to 2,483 pence, the highest price since at least 1988, as the U.K.’s second-largest clothing retailer reported a jump in first-half earnings and said next year may not be as challenging for the industry. Debenhams Plc (DEB), the U.K.’s biggest department-store retailer, rose 7 percent to 56.1 pence.

BP Plc (BP/) climbed 3.5 percent to 395.1 pence after a U.S. investigation into last year’s explosion at the Deepwater Horizon oil rig in the Gulf of Mexico spread the blame between the company and contractors.

Transocean Ltd. (RIG), which owned the rig, rose 2 percent to 50 Swiss francs in Zurich.

Sonova Soars

Sonova Holding AG (SOON), Europe’s biggest hearing aid-maker, surged 14 percent to 75.90 francs after receiving approval from the U.S. Food and Drug Administration to resume sales of the HiRes 90K cochlear implant following a recall.

Automakers had the biggest gain of 19 industry groups in the Stoxx 600, soaring 5.1 percent as a group. Bayerische Motoren Werke AG rose 6 percent to 55.07 euros and Volkswagen AG rallied 5.1 percent to 108.50 euros.

Societe Generale, France’s third-largest bank by assets, fell 2.9 percent to 17.39 euros after Moody’s Investors Service cut its long-term debt rating by one level. BNP Paribas (BNP) SA, which was kept on review for a possible cut, lost 3.9 percent to 26.90 euros.

Swedbank AB (SWEDA), the third-largest Swedish lender and the biggest bank in the Baltic countries, declined 5.6 percent to 73.15 kronor after halting share buybacks due to the “intensified financial anxiety in Europe.”

“We see today no altered risk in our portfolio but the perception of our buyback program is not supporting Swedbank’s brand in the current market situation,” Chief Executive Officer Michael Wolf said in a statement today. “On my recommendation. the board have decided to halt further repurchases until the market situation becomes clearer.”

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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European Stocks Gain for Second Day

Simon Dawson/Bloomberg

A stockbroker speaks on the telephone as he watches his computer screens at Shore Capital Group Ltd. in London.

A stockbroker speaks on the telephone as he watches his computer screens at Shore Capital Group Ltd. in London. Photographer: Simon Dawson/Bloomberg