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European Banks Shares Rise After Italy Proposes Budget Cuts

Dec. 5 (Bloomberg) -- European bank shares rose after Italian Prime Minister Mario Monti proposed budget cuts and government leaders met to discuss stricter deficit rules, easing concern the euro area’s debt crisis will worsen.

Italy’s biggest banks climbed more than 4 percent, among the biggest gainers in the 46-company Bloomberg Banks and Financial Services Index, which advanced 2.5 percent as of 3:10 p.m. in London. KBC Groep NV soared as much as 16.5 percent.

Monti presented a 30 billion-euro ($40 billion) package of austerity and growth measures in Rome today to reduce the European Union’s second-biggest debt. German Chancellor Angela Merkel met with French President Nicolas Sarkozy today to develop a plan for stricter enforcement of deficit rules, which they will discuss at a summit on Dec. 9. European Central Bank President Mario Draghi signaled last week that the central bank could do more if governments pushed for fiscal union.

“The markets’ reaction of the last days comes from an increased belief policy makers want to continue with the euro project, even if that requires an enhanced role from the European Central Bank,” said Ronald Doeswijk, chief strategist at Robeco Group in Rotterdam, which manages about 152 billion euros. “News like Italy’s deficit-reduction proposals further boosts relief.”

Italian Banks

Unicredit Spa, Italy’s biggest lender, rose 4.4 percent to 82.8 euro cents while rival Intesa Sanpaolo SpA gained 4.5 percent to 1.36 euros. Banca Monte dei Paschi di Siena SpA, Italy’s third-biggest bank, surged 10 percent to 30.4 cents, the biggest intraday gain since May 2010.

Italian borrowing costs dropped to a one-month low after Monti’s proposals for budget cuts. The yield on the 10-year Italian bond slid to 5.96 percent as of 3:07 p.m. in London.

The French and German governments want to have a new treaty agreed among all euro-area countries by March, Sarkozy said after a meeting today with Germany’s Merkel.

“We want to go on a forced march to win back the confidence of financial markets,” Sarkozy said at a press conference with Merkel in Paris. “We don’t have time. We are conscience of the gravity of the situation. We want to go as fast as possible based on this agreement between France and Germany, that is open to others.”

KBC, Belgium’s largest bank and insurer by market value, was the index’s biggest gainer, rising 13.9 percent to 11.40 euros. Belgium is set to get a full-time government as soon as today, ending a record 540 days of post-election brinkmanship between the Dutch-speaking north and French south that kindled speculation of a national breakup at the heart of Europe.

To contact the reporter on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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