European Stocks Post Weekly Gain as ECB Extends Liquidity Tools

European stocks posted the first weekly advance in four as the European Central Bank delayed its withdrawal of emergency liquidity measures and bought government bonds in Portugal, Ireland and Greece.

Bank of Ireland Plc surged 22 percent as euro-region governments agreed to hand the nation an 85 billion-euro ($114 billion) aid package. Porsche SE gained 12 percent after the approval of a 5 billion-euro stock sale to reduce debt. Fresnillo Plc and ArcelorMittal led basic-resources stocks higher, rising more than 7 percent.

The Stoxx Europe 600 Index rose 1.6 percent to 270.94 this past week, bringing the gauge to within 1 percent of this year’s highest level. The measure has rallied 17 percent since its 2010 low in May, amid better-than-estimated company earnings and speculation policymakers in the U.S. and elsewhere will implement more stimulus measures to prop up the recovery.

“Risk is ‘on’ again following the ECB’s latest offers of support for peripheral Europe, but this may mark only a brief interlude in what has recently been mainly a ‘risk off’ period,” Robert Carnell, chief international economist at ING Financial Markets in London, wrote in a report. “Policymakers’ attempts at defensive efforts, such as the ECB’s recent announcements, have tended to provide fleeting support at best. It is hard to see what is going to provide a lasting change in market sentiment.”

‘Acute’ Tensions

The ECB said it will delay the withdrawal of emergency liquidity measures and keep buying government bonds as the debt crisis creates “acute” tensions in financial markets. The central bank will offer banks unlimited loans through the first quarter over periods of seven days, one month and three months, President Jean-Claude Trichet told reporters on Dec. 2.

The central bank bought Irish, Portuguese and Greek bonds this week, said traders with knowledge of the transactions who asked not to be identified because the deals are confidential. An ECB spokesman in Frankfurt declined to comment.

“Lots of hedge funds covered shorts into the ECB meeting,” said Adrian Darley, who helps oversee about $100 billion as head of European equities at Ignis Investment Services Ltd. in London. “Long-only investors also bought some financials to reduce the extent of their underweighting” tied to sovereign fears.

IMF Welcome

The International Monetary Fund welcomed measures announced by the ECB and European governments to address the region’s debt crisis. European authorities have managed “to come up with measures and proposals to address the problem collectively as well as in a number of countries,” IMF Director of External Relations Caroline Atkinson said at a press briefing in Washington on Dec. 2. “Countries facing market pressure have also taken steps which we applaud.”

National benchmark indexes rose in 16 out of 18 western European markets. Germany’s DAX Index and the U.K.’s FTSE 100 Index each gained 1.4 percent, while France’s CAC 40 Index advanced 0.6 percent.

Ireland’s ISEQ ended the week 2.8 percent higher after the government accepted a European Union-led bailout. Spain’s IBEX 35 rallied 4.9 percent for the biggest weekly gain since July as Banco Santander SA soared 11 percent.

European stocks fell for the first two days of the week amid concern that the region’s debt turmoil may engulf Spain, the euro area’s fourth-largest economy, after the Irish rescue failed to persuade investors that the crisis will be contained. The extra yield investors demand to hold Spanish and Italian government bonds instead of German bunds climbed to euro-era records on Nov. 30.

Bank of Ireland

Bank of Ireland climbed 22 percent for the best performance in the Stoxx 600. Ireland’s banks will get as much as 35 billion euros of EU and IMF aid while senior bondholders will escape the cost of the bailout.

Porsche increased 12 percent, leading automobile shares to the biggest gain among 19 industry groups in the Stoxx 600. Investors approved plans for a stock sale to reduce the sports-car maker’s debt as it prepares to combine with Volkswagen AG, Europe’s largest carmaker.

VW preferred shares gained 6.1 percent.

Bayerische Motoren Werke AG and Daimler AG, the world’s biggest makers of luxury cars, rose 7.5 percent and 4.7 percent respectively after reporting higher U.S. sales for November.

Fresnillo, ArcelorMittal

Basic-resources stocks were the second-best performing industry in Europe this week, as metal prices advanced. Copper posted its first weekly advance in four as reports showed manufacturing in China, the U.S. and Europe expanded, adding to signs of a revival in demand.

Fresnillo, the world’s largest primary silver producer, soared 8.7 percent. ArcelorMittal, the biggest steelmaker, increased 7.9 percent.

De La Rue Plc surged 18 percent, the biggest gain in eight years. The Financial Times cited a BofA Merrill Lynch Global Research report giving the world’s biggest printer of banknotes a “fair value” of as much as 830 pence a share.

Carrefour SA sank 9.1 percent, the most since May, as the world’s second-largest retailer cut its 2010 profit forecast for the second time in two months, citing increased writedowns in Brazil and lower-than-expected demand in Europe.

Thomas Cook Group Plc dropped 7.4 percent. Europe’s second-biggest tour operator posted a full-year loss of 2.6 million pounds ($4 million) as the shutdown of European airspace after a volcanic eruption disrupted travel business and led to one-time costs.