European Stocks Have Best Day Since 2011

Updated on
  • Shares extended rebound after China said it increased stimulus
  • All industry groups in Stoxx 600 advanced more than 3%

China's Central Bank Lowers Interest Rates

The worst day for European equities since the financial crisis gave way to the biggest rebound in four years.

The Stoxx Europe 600 Index climbed 4.2 percent at the close of trading in London, extending gains to 4.7 percent after China’s central bank said it cut interest rates. Today’s rebound was just as broad-based as yesterday’s slump, with almost all Stoxx 600 companies rising, and volume of shares changing hands 78 percent greater than the 30-day average.

“It’s encouraging in the sense that they’re trying to mitigate the impact of the decline,” said Peter Dixon, a global economist at Commerzbank AG in London, referring to China’s move today. “Investors panicked yesterday, concerned about of the lack of reaction, and this might help. Markets are beginning to realize this is a Chinese problem, not a European one. These are specific issues which refer to fundamentals in other markets and do not reflect the situation in Europe.”

Germany’s DAX Index rose 5 percent after closing on Monday in a bear market, and the U.K.’s FTSE 100 Index added 3.1 percent, climbing from its lowest level since 2012. All western-European markets rallied more than 1.3 percent on Tuesday.

Shares rebounded after the rout started in China spread across markets, sending all but three companies in the Stoxx 600 down on Monday. The benchmark gauge of European equities plunged as much as 8.1 percent before paring losses to 5.3 percent. It finished the day 17 percent below its April record, erasing gains for the year. At yesterday’s close, 17 out of 18 western-European markets had lost 10 percent or more from their high. Goldman Sachs Group Inc. cut its asset allocation for equities in the next three months.

With the Stoxx 600 at its lowest level since January on Monday, the gauge traded at 14.6 times estimated profit, down from 17.4 times in April, after the European Central Bank began quantitative easing to support the economy. A technical level indicated the losses might have been too extreme and equities may snap back. That’s probably what investors who poured $90 billion in European equity funds this year are hoping for.

Syngenta AG jumped 5.9 percent as people familiar with the situation said Monsanto Co. has made an increased takeover offer to the Swiss pesticide producer. RSA Insurance Group Plc climbed 3.9 percent after Zurich Insurance Group AG proposed to buy it.

BHP Billiton Ltd. rallied 5.5 percent after the the world’s biggest mining company said it will increase its dividend, even with commodities near their lowest levels since 1999. Abengoa SA surged 27 percent after a report that a planned capital increase will include Class A shares. Royal DSM NV added 3.6 percent after the Dutch maker of nutritional products said it will cut jobs.