By Ana Nicolaci da Costa
LONDON, March 18 (Reuters) - European stocks jumped 3.5
percent on Tuesday as hopes for a steep U.S. rate cut and
above-forecast results from Goldman Sachs <GS.N> and Lehman
Brothers <LEH.N> provided relief to a battered financial sector.
The FTSEurofirst 300 index <> closed up 3.5 percent at
1,241.99 points, but this was not enough to recoup all the
previous day's 4.4 percent loss. The index is down nearly 18
percent this year.
The rebound was led by recently battered banking shares with
UBS <UBSN.VX> -- a major victim of the credit crunch -- jumping
more than 14 percent, Credit Suisse <CSGN.VC> gaining 10.4
percent and HBSC <HSBA.L> rising more than 7 percent.
Nearly all U.S. primary dealers now believed that the
Federal Reserve would cut key short-term rates by at least
three-quarters of a percentage point late on Tuesday. Fed fund
futures showed a 92 percent chance of a 1 percentage point cut.
"Because of how jittery things are and how uncertain things
are, whenever you get these little bits of positive news, you do
tend to get a jump and it may be exaggerated a bit," said James
Hughes, market analyst at CMC Markets.
Goldman Sachs and Lehman Brothers on Tuesday both reported
lower quarterly profits but results for both investment banks
topped forecasts, sending their shares soaring.
Oil stocks, benefiting from rising crude prices, were also a
positive weight on the index. BP <BP.L> was up 1.8 percent,
Royal Dutch Shell <RDSa.L> rose more than 2 percent and Total
<TOTF.PA> gained 2.7 percent.
Also among gainers, BMW <BMWG.DE>, the world's largest
premium carmaker, forecast easing currency burdens would help
boost underlying profit in 2008 and keep margins at its core
automotive business at least steady.
This boosted the stock by 4.9 percent. In the same sector
Volkswagen <VOWG.DE> was up 7.3 percent.
VOLATILE TIMES
The FTSEurofirst 300 index sank on Monday after the fire
sale of struggling Wall Street firm Bear Stearns <BSC.N> raised
concerns about valuations in the banking sector and sparked
fresh nervousness over the credit crisis.
Since last summer, a debacle in the risky U.S. subprime
mortgage market has forced many financial institutions to report
massive writedowns and analysts expect this will overshadow this
year's stock market performance.
European stocks are expected to recover around 24 percent by
December, according to a Reuters poll released on Tuesday, but
this will still mean an overall loss for the year.
The poll of 11 analysts was taken last week before markets
erupted and JP Morgan Chase snapped up Bear Stearns.
Meanwhile world stock markets were expected to post their
most modest annual gains for years in 2008, even as major
central banks trimmed rates to counter the economic slowdown,
another Reuters poll showed.
The next cut is expected to come from the Fed after the
European market close on Tuesday where the U.S. central bank is
expected to deliver one of the steepest interest rate cuts since
1982.
"It seems the Fed is close to outright panic. Last week's
liquidity injection was an attempt to shift markets away from
expecting a 75bp rate cut today. After the last few days, the
markets are betting now on a 100bp rate cut. I don't believe the
Fed can afford to disappoint market expectations," Robert Lind,
equity analyst at ABN AMRO, wrote in a note.
Among losers, Metro <MEOG.DE> fell 6.7 percent as Germany's
biggest retailer disappointed investors with a lacklustre plan
to revamp its Real hypermarkets and a conservative 2008
forecast.
Around Europe, Germany's DAX index <> rose 3.4
percent, Britain's FTSE 100 index <> was up 3.5 percent and
France's CAC 40 <> gained 3.4 percent.
(Editing by David Holmes)
