U.K. stocks posted the biggest advance in six months as the European Central Bank left its benchmark interest rate unchanged and extended its unlimited short-term cash offering until the start of 2013.
A gauge of British banks rallied, with Barclays Plc and Lloyds Banking Group Plc gaining more than 5 percent. Man Group Plc, the world’s largest publicly traded hedge fund, jumped 7.1 percent after Citigroup Inc. recommended the shares. BG Group Plc gained after Goldman Sachs Group Inc. named it a top pick among integrated oil companies.
The FTSE 100 Index rose 2.4 percent to 5,384.11 at the close in London, the most since Nov. 30. Stocks earlier briefly pared their gains after ECB President Mario Draghi said he sees downward risks to the region’s economic outlook. The gauge has still lost 9.8 percent from its 2012 high on March 16 as concern mounted that Greece will be forced to leave the euro area. The broader FTSE All-Share Index climbed 2.3 percent today, while Ireland’s ISEQ Index added 2.5 percent.
“What is spurring the optimism may be the sudden realization that the markets have priced in an apocalyptic scenario,” said Michael A. Gayed, chief investment strategist in New York at Pension Partners LLC, which advises on over $150 million in assets. “Markets are now likely realizing that the event so feared may not happen. With Germany likely to blink, this crisis could be with hindsight an immense opportunity for risk assets.”
Draghi said officials will extend their offerings of unlimited cash until the start of 2013 for periods up to three months as they try to head off risks stemming from the euro-area debt crisis.
“We have decided to continue our main refinancing at fixed rate, full allotment for as long as necessary” and at least until January, Draghi told reporters in Frankfurt today. He didn’t indicate whether the ECB plans to offer banks a new round of three-year cash.
The ECB today left its benchmark interest rate at 1 percent. Draghi also said today that the euro region economy faces “increased downside risks.”
G7 leaders yesterday agreed to coordinate their response to the euro-area debt crisis, which has pushed at least eight of the 17 of the region’s economies into recession and damped European demand for foreign goods.
Bank of England
The Bank of England will announce its latest policy decision tomorrow. The BOE will keep its bond-purchase target at 325 billion pounds, said 38 of 41 economists in a survey. It will also leave its benchmark interest rate at a record-low 0.5 percent, according to a separate survey.
A gauge of London-listed bank shares rallied 3 percent after Sanford C. Bernstein & Co. said impairments in the loan books of U.K. lenders are stabilizing.
“We remain bullish on the U.K. banks from a long-term, fundamental standpoint,” Bernstein said in a note to clients today. “Any impact on the U.K. banking book will be considerably less punitive than the last crisis. On the retail book, we model in only a slight uptick in impairments in the second half of this year with a peak in H1 2013.”
Barclays Plc climbed 8.2 percent to 187.80 pence.
Lloyds Banking Group Plc rose 5.2 percent to 27.05 pence. The lender agreed to sell 809 million pounds ($1.25 billion) of Australian corporate real-estate loans to a Morgan Stanley and Blackstone Group LP joint venture for about 388 million pounds in cash.
Man Group, BG
Man advanced 7.1 percent to 80.9 pence. Citigroup raised its recommendation on the stock to buy from neutral.
BG gained 3.4 percent to 1,241 pence after Goldman named it as a top pick among integrated oil companies.
Mining shares rallied as metal prices including copper, lead and nickel rose in London. Vedanta Resources Plc, an aluminum and copper producer in India, added 9.1 percent to 963.5 pence. Fresnillo Plc, the world’s largest primary silver producer, increased 7.4 percent to 1,472 pence. Kazakhmys Plc, Kazakhstan’s largest copper producer, gained 7.4 percent to 714.5 pence.
Petropavlovsk Plc, which operates gold mines in Russia, rallied 9.7 percent to 425.6 pence. The stock was raised to buy from neutral at UBS AG.
Yell Group Plc, the publisher of U.K. yellow pages directories, jumped 5.7 percent to 1.67 pence. Citigroup Inc. raised the stock to neutral from sell.
Mecom Group Plc, which invests in consumer media assets, sank 48 percent to 76 pence. The company said it sees “significant deterioration” in Dutch advertisement revenues in the second quarter.
Tate & Lyle Plc, the maker of low-calorie sweetener Splenda, slipped 1.6 percent to 643 pence. Berenberg Bank AG lowered its full-year 2013 and 2014 earnings-per-share estimates for the company by 3 percent.