European Stocks Post Second Weekly Gain on Stimulus Hopes

European stocks advanced for a second week as Greeks prepared to vote, after the Bank of England announced credit-easing measures, boosting optimism central banks will take steps to stimulate the global economy.

Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc jumped at least 11 percent as the Bank of England unveiled two plans to boost cash supply in the banking system. National Bank of Greece SA surged 31 percent. Etablissements Maurel & Prom (MAU) rose 13 percent after a report said it may be a takeover target. Nokia Oyj tumbled 18 percent after it announced as many as 10,000 job cuts and its debt rating was cut.

The Stoxx Europe 600 Index (SXXP) climbed 0.9 percent to 244.21 this week. The gauge has still declined 10 percent from its high on March 16 amid growing concern that Greece may be forced to leave the euro currency union after the elections on June 17.

“There is a green light for more stimulus as inflation comes down, which means central banks can be stimulative,” said Daniel Weston, a portfolio adviser at Schroeder Equities GmbH in Munich. “Rising German bund yields this week on Tuesday and Wednesday have also seen more money come into equities from bonds, as the potential risk of Germany having to help the euro zone increases.”

National benchmark indexes climbed in 15 of the 18 western European markets this week. The U.K.’s FTSE 100 gained 0.8 percent. France’s CAC 40 rose 1.2 percent and Germany’s DAX added 1.6 percent. Spain’s IBEX 35 rallied 2.6 percent and Greece’s Athens Stock Exchange Index jumped 14 percent.

BOE Stimulus

BOE Governor Mervyn King said in a speech on Thursday that the case for more stimulus in the U.K. is growing. He also unveiled two plans to improve cash supply to the banking system.

A “funding-for-lending” program will allow banks to swap assets with the BOE for money to be loaned to their customers. The central bank will also activate an unused facility to inject at least 5 billion pounds ($7.8 billion) a month into the system at a minimum rate of 25 basis points more than the benchmark interest rate, now at a record low of 0.5 percent.

European Central Bank President Mario Draghi said there are no inflation risks in the 17-nation euro area and vowed the central bank will continue providing liquidity to solvent lenders.

European Union leaders will press for new efforts to boost the 27-nation area’s economy and improve lending conditions, according to a draft document prepared for a June 28-29 summit in Brussels. Steps include introducing so-called project bonds, making better use of EU infrastructure funds and increasing the capital, and therefore lending power, of the European Investment Bank, according to the June 12 draft.

Greek Rally

Greek stocks rallied this week amid speculation that New Democracy, the party that backs an agreed bailout for the nation, may win the June 17 election.

Almost 10 million Greeks will vote for the second time in six weeks on Sunday after a May 6 ballot failed to result in a government. The constitution permits a third election too. Exit polls will be released when voting ends at 7 p.m. in Athens.

A victory by Syriza, the party that promises to renege on Greece’s end of the bailout deal, could speed the nation’s exit from the euro.

Europe’s turmoil forced Spain last week to ask for a bailout of its banks that may run as high as 100 billion euros ($126 billion), making it the fourth and largest euro-zone economy to seek aid. Spain’s 10-year bond yield vaulted to 7 percent on Thursday, fueling speculation that the world’s 12th- biggest economy may need a full rescue. Italy’s 10-year yield reached a four-month high of 6.22 percent on June 13.

Ten-year German yields rose this week to as high as 1.51 percent, up from a June 1 record low of 1.127.

Rating Downgrades

Moody’s cut Spain’s rating by three steps to Baa3 from A3 on Wednesday, citing the nation’s increased debt burden, weakening economy and limited access to capital markets. Moody’s also lowered Cyprus’s bond rating to Ba3 from Ba1, attributing the downgrade to the increased likelihood of Greece leaving the euro area.

France’s credit rating was cut on Thursday by one step to BBB+ from by Egan-Jones Ratings Co., which cited deterioration in the nation’s credit metrics and the need for support of the country’s banks.

Royal Bank of Scotland rose 11 percent, Lloyds climbed 12 percent and Barclays Plc (BARC) added 5.5 percent. National Bank of Greece surged 35 percent and Alpha Bank AE jumped 71 percent.

Maurel & Prom climbed 13 percent in Paris, after the U.K.’s Guardian newspaper reported that Royal Dutch Shell Plc may be interested in taking over the company. Shell declined to comment as did Maurel & Prom.

Petropavlovsk Plc (POG), a producer of gold in Russia, jumped 16 percent in London trading this week after raising its output target and saying cost increases would be lower than expected.

EON, RWE Gain

EON AG and RWE AG rose 5.6 percent and 3.7 percent respectively. Utilities, including Germany’s two biggest, are seeking about 5 billion euros ($18.75 billion) in damages over the country’s exit from nuclear power, Frankfurter Allgemeine Zeitung reported, citing court filings.

Nokia slid 18 percent. Chief Executive Officer Stephen Elop announced a restructuring plan on Thursday including as many as 10,000 job cuts. The Espoo, Finland-based company said it expects to book 1.25 billion euros in cash outflows for its restructuring programs from the second quarter through the end of 2013.

Nokia’s debt rating was cut to junk at Moody’s Investors Service, the last of the three major credit rating companies to strip the Finnish mobile-phone maker of its investment grade because of mounting handset losses.

Credit Suisse slid 8.5 percent. The SNB said it will review its communications procedures after trading in bearish options on Switzerland’s second-biggest bank surged following a private briefing in which regulators disclosed the firm faced a capital shortfall.

Daimler AG, the third-biggest maker of luxury vehicles, fell 3.7 percent and BMW AG, the largest, declined 4.9 percent.

Morgan Stanley reduced its earnings-per-share estimates at both Daimler and BMW by 5 percent to 10 percent for this year, 2013 and 2014. The bank said it lowered the outlook on the premise that prices would fall 1.5 percent each year.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

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