In the Market: Stocks Rise as China Cuts Bank Reserve Ratio

30 November 2011


Expansionary monetary policy from China should see bulls in the US market happy today

European stocks rose, reversing earlier declines, after China said it will cut the amount of cash that banks must set aside as capital for the first time since 2008. U.S. index futures rallied, while Asian shares fell.

BHP Billiton Ltd. (BHP), the world’s biggest mining company, paced gains in commodity shares. Shire (SHP) Plc led health-care shares higher after Citigroup Inc. recommended buying the stock.

The Stoxx Europe 600 Index increased 0.9 percent to 233.66 at 12:08 a.m. in London. Thebenchmark gauge earlier fell as much as 1.1 percent after Standard & Poor’s cut the credit ratings of some of the world’s largest banks including HSBC Holdings Plc (HSBA) and UBS AG. (UBSN) The December contract on the S&P 500 Index gained 0.8 percent. The MSCI Asia Pacific Index lost 0.2 percent.

China will cut the reserve requirement ratio for banks by 0.5 percentage points from Dec. 5, according to a statement on the central bank’s website today.

“This measure shows that authorities are controlling the evolution of the economy to avoid a collapse in China,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg. “It’s good news. It means China will avoid the worst scenario of a hard landing.”

The Stoxx 600 has still dropped 3.9 percent in November, declining for the sixth month in seven, as Italian bond yields surged and euro-area policy makers struggled to agree on a plan to contain the region’s sovereign-debt crisis.

Brussels Meeting

Euro-area finance ministers approved enhancements to their bailout fund at their meeting in Brussels yesterday. They agreed to work on boosting the resources of the International Monetary Fund so it can “cooperate more closely” with the European Financial Stability Facility, Luxembourg Prime Minister Jean- Claude Juncker said late yesterday.

Finance ministers of the 27-nation European Union are meeting in Brussels today to seek agreement on how to temporarily guarantee banks’ bond issuance in order to improve funding conditions for lending. EU leaders agreed last month to provide the guarantees to restore investor confidence in banks.

“I’m optimistic in the short term, until year end,” said Guillaume Chaloin, a fund manager at Meeschaert Asset Management in Paris, which oversees $3.3 billion in assets. “We’re waiting for a clear decision from European policy makers. The meeting of finance ministers wasn’t too bad.”

Budget Discipline

European heads of government meet on Dec. 9 in Brussels, with Germany pushing for governance changes that would tighten enforcement of budget rules. The move might make it easier for the European Central Bank to play a bigger part in supporting euro-area nations, possibly channeling loans through the IMF, two officials familiar with the matter said yesterday.

In the U.S., a report at 8:15 a.m. New York time may show companies in the world’s largest economy added 130,000 workers in November, economists said. ADP Employer Services’ report based on payrolls showed 110,000 were hired the previous month. Reports on nonfarm productivity and pending sales of existing homes are also due today.

Mining Companies Gain

BHP advanced 1.8 percent to 1,869 pence. Rio Tinto Group, the world’s second-biggest mining company, climbed 2 percent to 3,200 pence. Xstrata Plc (XTA) jumped 3.2 percent to 985.5 pence. A gauge of mining shares rose 2 percent for the best performance in the Stoxx 600.

Shire added 2.5 percent to 2,096 pence after Citigroup rated the stock “buy” in new coverage.

Grifols SA (GRF) increased 2.8 percent to 11.71 euros. The stock was rated “buy” in new coverage at Deutsche Bank AG. (DBK)

Nobel Biocare Holding AG (NOBN) climbed 2.3 percent to 10.92 Swiss francs.

Wendel (MF) SA soared 12 percent to 51.50 euros for the biggest gain in the Stoxx 600. TE Connectivity Ltd., the world’s largest electrical-connections maker, agreed to buy Deutsch Group SAS from Wendel for about $2.1 billion.

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