Stimulant on European Stocks Rises

European stocks rebounded from a five-day plunge as concern eased losses from U.S. subprime mortgages will damp profit growth.

Aviva Plc, HSBC Holdings Plc and UBS AG paced gains by financial stocks. Lloyds TSB Group Plc rallied on earnings that topped analysts' estimates. Ryanair Holdings Plc and MAN AG led airline and auto stocks higher after raising profit forecasts. GlaxoSmithKline Plc jumped the most in one year after a panel of doctors said its Avandia drug should remain on the U.S. market.

Seventeen of the 18 industry groups in the Dow Jones Stoxx 600 Index advanced. The measure tumbled 5.8 percent in the previous five days on concern that rising corporate bond risk will limit takeovers and defaults among U.S. subprime borrowers will spill over into the economy.

``The markets are calming down after a rout driven by sentiment,'' said Werner Wittenhagen, who helps oversee the equivalent of $21 billion at LBBW Asset Management in Stuttgart, Germany. ``The subprime crisis should be largely factored into share prices now.''

U.S. stocks rebounded yesterday from the worst two-day slide since 2003 as Wall Street's biggest securities firms said the sell-off made shares of banks, homebuilders and retailers cheap. Asian markets rose today for a second day.

Europe's Stoxx 600 added 1.7 percent to 378.41, the steepest gain since March 15, as of 2:15 p.m. in London. The Stoxx 50 advanced 2 percent and the Euro Stoxx 50, a measure for the euro region climbed 1.5 percent.

National benchmarks rose in all 18 western European markets. The U.K.'s FTSE 100 gained 2.2 percent. France's CAC 40 rose 1.6 percent and Germany's DAX increased 1.9 percent.

Buy Stocks

HSBC strategists today recommended investors buy stocks worldwide following last week's sell-off, and add to holdings of U.S. mortgage-backed bonds. Morgan Stanley Capital International's World Index slid the most since July 2002 last week, while yields on some types of U.S. mortgage-backed bonds reached record levels as delinquencies by subprime borrowers rose.

``The panic seems overdone and you're paid to take risk,'' HSBC's Richard Cookson and Wesley Fogel wrote in a note.

The risk of owning corporate bonds dropped by the most in at least three years after home lender GMAC LLC said subprime mortgage losses narrowed and Citadel Investment Group LLC bought the assets of a failed hedge fund.

Aviva, the U.K.'s biggest insurer, rose 4.6 percent to 689 pence. HSBC, the largest European bank, climbed 2.8 percent to 917 pence. UBS, the world's biggest money manager, gained 3 percent to 67.7 francs.

``The impact of the U.S. housing crisis shouldn't be blown out of proportion,'' said Achim Matzke, head of global and technical index research at Commerzbank AG in Frankfurt.

Lloyds, Ryanair

Lloyds TSB climbed 4.3 percent to 557.5 pence. The U.K.'s largest provider of unsecured consumer loans increased its dividend for the first time since 2002 as half-year profit rose 27 percent, more than analysts estimated.

``Earnings across the board have been relatively good and the business outlooks for the rest of the year were quite positive,'' said Thorsten Winkelmann, who manages 3.5 billion euros at Allianz Global Investors in Frankfurt. ``After more volatility this summer, we expect share prices to rise at the end of the year.''

Ryanair jumped 12 percent to 5.28 euros, the steepest gain in the Stoxx 600 today. The region's biggest discount airline doubled its forecast for full-year earnings growth as the carrier slashed flights at London's Stansted Airport to increase demand and reduce costs.

MAN rose 5.3 percent to 108.15 euros, the biggest gain in nine months. Europe's third-largest truckmaker raised its full- year earnings forecast after second-quarter profit more than doubled on higher sales in Russia, Ukraine and Belarus.

Glaxo, BHP

Glaxo, Europe's the largest drugmaker, advanced 3.1 percent to 1,252 pence, the steepest gain since April 2006. An advisory panel yesterday voted 22-1 to support the Avandia pill, the London-based drugmaker's second-best selling medicine. The shares have dropped 9.9 percent since a May 21 report in the New England Journal of Medicine linked Avandia to heart attack risks.

BHP Billiton Ltd., the world's biggest mining company, rose 4.1 percent to 1,460 pence. Rio Tinto Group, the third-largest, gained 4.1 percent to 3,592 pence.

Copper for October delivery on the Shanghai Futures Exchange rose as much as 1,560 yuan, or 2.3 percent, to 69,280 yuan ($9,152) a metric ton. Zinc also advanced.

Alcatel-Lucent, the world's biggest supplier of telecommunications equipment, dropped 7.9 percent to 8.83 euros, the lowest since March 30. The company formed after Alcatel SA's Nov. 30 purchase of Lucent Technologies Inc. reported a second- quarter net loss of 586 million euros ($803 million) on costs related to the merger, almost twice the 275 million-euro median estimate of four analysts surveyed by Bloomberg News.

Volkswagen AG gained 3.5 percent to a record 132.94 euros after Citigroup Inc. raised its recommendation for shares of Europe's largest carmaker to ``hold'' from ``sell.''

source:bloomberg.com