European Stocks Gain This Week, Pare First Annual Loss Since ’08

January 02, 2012, 2:39 AM EST By Adam Haigh

Dec. 31 (Bloomberg) -- European stocks climbed in the last week of 2011 as U.S. data showed the recovery in the world’s largest economy is gathering pace and optimism grew that euro- area policy makers will contain the debt crisis.

Banco Comercial Portugues SA and Banco Espirito Santo SA, Portugal’s largest lenders, jumped more than 15 percent after a report that the government may recapitalize the banks without becoming a shareholder. Britvic Plc led food and beverage producers higher, extending this year’s gains for the industry.

The benchmark Stoxx Europe 600 Index rose 1.1 percent to 244.54, the highest since Oct. 28. The second-straight week of gains helped trim this year’s losses to 11 percent. The gauge has rallied 14 percent from this year’s low on Sept. 22 as euro- area leaders planned to channel central-bank loans through International Monetary Fund to debt-ridden nations and the European Central Bank took steps to ease a cash squeeze.

“There is a risk of losing sight that gradually progress has been made,” said William De Vijlder, who oversees $778 billion as the global chief investment officer of Paris-based BNP Paribas Investment Partners. “The ECB has eased its policy. The firepower of the IMF is being increased.”

Reports this week showed business activity in the U.S. expanded more than forecast and confidence among American consumers rose in December to the highest level in eight months.

Dwindling Volumes

Post-Christmas trading was slow, with daily volume in the Stoxx 600 this week dipping to 32 percent of this year’s average, according to data compiled by Bloomberg.

The Stoxx 600 gained 5.6 percent from the start of the year to its peak on Feb. 17. From there, the index tumbled 26 percent to its low on Sept. 22, entering a bear market. The gauge had its worst third quarter since 2002, dropping 17 percent, as U.S. leaders wrangled over deficit cuts and European policy makers remained divided on their response to the debt crisis.

An Oct. 26 agreement to bolster the region’s bailout fund, the European Financial Stability Facility, stalled as Germany and France differed over how tackle the crisis. France called for using the ECB as a backstop, while Germany rejected it. Chancellor Angela Merkel listed using the ECB as the lender of last resort, issuing joint euro-area bonds and going in for a “snappy debt cut” as unworkable proposals.

Lenders Lead Losses

Banks had the biggest drop among 19 industry groups this year, sinking 32 percent, amid growing concern that the fiscal crisis will force at least one nation to default on its debt. Health-care and food stocks advanced as investors sought companies whose earnings are less tied to economic growth.

The decline in European equities compares with an 17 percent tumble in the MSCI Asia Pacific Index and a 0.4 percent gain in the S&P 500 at the close on Dec. 29.

Banco Comercial Portugues advanced 16 percent to a two- month high. Chinese banks may be interested in investing in the lender, news agency Lusa reported citing Cao Guangjing, chairman of China Three Gorges Corp.

Banco Espirito Santo rose 15 percent. Portugal may recapitalize the country’s banks without becoming a shareholder, Jornal de Negocios reported, without saying where it got the information. The state may subscribe contingent convertible bonds sold by the banks, the newspaper said. So-called CoCos are bonds that convert into equity if a bank’s capital drops below a set level.

Britvic rallied 4.7 percent. Unilever climbed 1.6 percent. Nestle SA added 1.5 percent.

Rio Tinto Group declined 1 percent, as copper slid on the London Metal Exchange this week.

--With assistance from Adria Cimino in Paris. Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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