European Stocks Post Weekly Advance on U.S. Jobless Rate

European stocks posted their biggest weekly gain in a month as the U.S. unemployment rate dropped to the lowest level since January 2009 and stress tests bolstered confidence in the Spanish banking system.

Banco Espirito Santo SA, Portugal’s largest publicly traded bank by market value, jumped the most in more than three years. EasyJet Plc surged 6.7 percent in London trading as Europe’s second-biggest discount airline said full-year earnings topped its forecasts. Bayerische Motoren Werke AG and Daimler AG led a rally in automakers.

The Stoxx Europe 600 Index rose 2.1 percent to 274.11 this past week, the largest increase since the period ended Sept. 7. The benchmark measure has advanced 12 percent in 2012 as European Central Bank policy makers approved a plan to buy the bonds of the most-indebted euro-area members and the Federal Reserve unveiled a third round of stimulus measures.

“Equities are going up, house prices are going up and now unemployment is going down,” said Jacob de Tusch-Lec, a London-based money manager who helps oversee about $20 billion at Artemis Investment Management LLP. “You have all these three things happening at the same time and that is a very potent picture. The wealth effect is alive.”

A report on Sept. 25 showed U.S. home prices climbed more than forecast in July. The S&P/Case-Shiller index of property values in 20 cities increased 1.2 percent from a year earlier, the biggest 12-month advance since August 2010.

Benchmark Indexes

National benchmark indexes advanced in all 18 western European markets, except Iceland. Germany’s DAX index added 2.5 percent, the U.K.’s FTSE 100 gained 2.3 percent and France’s CAC 40 increased 3.1 percent. Greece’s ASE Index jumped 12 percent, the most in almost four months.

Government data yesterday showed U.S. employers added 114,000 workers to payrolls in September as the unemployment rate unexpectedly declined to 7.8, the lowest level since President Barack Obama took office in January 2009. The gain in payrolls was close to the 115,000 median estimate in a Bloomberg survey of 89 economists. The jobless rate dropped from 8.1 percent and hourly earnings climbed more than forecast.

Other data this week showed that U.S. service industries expanded more than estimated in September, while manufacturing unexpectedly increased.

Spanish Rescue

Spain’s Prime Minister Mariano Rajoy said he has no plans to ask for a bailout soon, in response to mounting speculation that a request was imminent.

Still, Spain’s 2013 budget, presented this week, assumes the economy will shrink 0.5 percent, less than the 1.3 percent median contraction predicted by 21 analysts surveyed by Bloomberg. Deputy Finance Minister Fernando Jimenez Latorre said a larger-than-expected contraction next year won’t affect Spain’s ability to meet its budget commitments. Spain is still analyzing the possibility of seeking assistance even though the procedures involved are “complex,” he added.

“Investors are preparing for the inevitable Spanish request for a bailout,” said Graham Bishop, an equity strategist at Exane BNP Paribas in London. “Stocks are also helped by signs the economy is back on a slow recovery path after a summer soft patch.”

The ECB and the Bank of England left their benchmark interest rates on hold, while euro-area retail sales unexpectedly increased for a fourth month in August as demand rebounded in Germany, Europe’s largest economy.

The ECB is ready to start buying government bonds as soon as the necessary conditions are fulfilled, President Mario Draghi said Oct. 4 at a press conference in Ljubljana, Slovenia.

Stress Tests

A gauge of European lenders had the second-biggest advance among 19 industry groups in the Stoxx 600 this week as stress tests commissioned by the European Union and the Spanish government bolstered confidence. Spain’s banks have a capital deficit of 59.3 billion euros ($76 billion), tests conducted by New York-based management consultancy Oliver Wyman showed, which was less than the 62 billion euros Wyman estimated in June that the lenders would need.

The EU’s top banking regulator told the bloc’s lenders to hold on to more than $258 billion in capital raised since 2011 to pave the way for tougher global standards. Twenty-seven banks were required by the European Banking Authority to submit plans for their capital raising attained a total of 116 billion euros, the London-based EBA said Oct. 3.

Espirito Santo

Espirito Santo rallied 21 percent in Lisbon for the biggest jump since May 2009. Austria’s Raiffeisen Bank International AG, eastern Europe’s second-biggest lender, jumped 11 percent.

Credit Agricole SA climbed 8.7 percent as France’s third-largest bank started exclusive talks to sell Emporiki Bank, its unprofitable Greek unit, to Alpha Bank SA for a token price of 1 euro. Alpha Bank surged 22 percent.

EasyJet advanced 6.7 percent to pace gains among airlines, after saying on Oct. 3 that full-year earnings beat its forecasts following a surge in demand for flights from London after the end of the 2012 Olympic Games.

The International Air Transport Association raised its 2012 global airline-profit forecast by 37 percent as carriers slow capacity growth to cope with higher fuel prices and waning travel demand.

Air France-KLM Group, Europe’s biggest airline, rallied 7.2 percent and International Consolidated Airlines Group, the parent company of British Airways and Iberia, jumped 11 percent.

Automakers Gain

Stoxx 600 automakers advanced 5.1 percent this week, for the biggest gain among the 19 industry groups. BMW added 7.2 percent, the most in eight months, after the largest maker of luxury cars said group sales in China rose 59 percent in September, easing investors’ concerns that the world’s biggest automotive market is slowing.

Daimler increased 4.3 percent after reporting sales of Mercedes-Benz cars jumped 7 percent in the U.S. in September as the third-largest luxury carmaker expanded its lead on BMW in that market. Preferred shares of Volkswagen AG, Europe’s biggest automaker, rose 4.7 percent.

BTG Plc soared 14 percent, the biggest gain since April 2009. The British specialist drugmaker raised its annual revenue forecast, citing “a strong first-half performance and a positive outlook for the second half.”

Banco Popular Espanol SA tumbled 12 percent after the lender said it will seek to raise as much as 2.5 billion euros from a share sale as it tries to cover a capital shortfall identified by the stress tests.

FirstGroup plunged 18 percent, the most since March, after the U.K. Department for Transport canceled the West Coast competition to run trains from London to Scotland citing the discovery of “serious technical flaws” in the franchise process. FirstGroup had won the route in August from billionaire Richard Branson’s Virgin Group.

Tesco Plc, the U.K.’s largest retailer, slid 5 percent, the most since January. The company reported its first profit decline in almost two decades after increasing investment to halt declining supermarket sales.

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