GLOBAL MARKETS-European bank relief lifts stocks, lowers bond yields

Mon Aug 4, 2014 7:54am EDT

By Jamie McGeever
    LONDON, Aug 4 (Reuters) - European stocks rose on Monday and
bond yields fell on a banking sector rebound after Portugal
prevented the collapse of one of its biggest lenders and shares
in the continent's largest bank jumped in the wake of its latest
earnings report.
    This dovetailed with easing fears of higher U.S. interest
rates following Friday's U.S. employment report, and eclipsed
growing geopolitical concerns over the Middle East and the
effect of Western trade sanctions on Russia.
    Lisbon on Sunday announced a near 5 billion-euro rescue of
the country's largest listed bank, Banco Espirito Santo
, preventing it from collapsing and potentially
destabilising the banking sector regionwide. 
    "The market's initial reaction is that it's pretty
reassuring to see Portugal moving quickly to rescue BES. Overall
it eases systemic fears that had resurfaced last week," Saxo
Bank sales trader Andrea Tueni said.
    On Monday, HSBC reported a larger-than-expected
drop in profits, but investors looked instead to the bank's
attractive dividend yield and scooped up the shares, lifting
them to a three-month high. 
    "There are a number of positives within the (HSBC)
statement, not least of which is the ongoing strength of the
balance sheet ... and a dividend yield which, at 4.9 percent, is
extremely attractive," said Richard Hunter, head of equities at
Hargreaves Lansdown.
    HSBC shares were up 1.7 percent at 640 pence,
having initially fallen by the same magnitude.
    At 1145 GMT on Monday the FTSEurofirst 300 index of
leading shares was up a third of a percent, led by a 1.3 percent
rise in pan-European banking stocks. Euro zone
financials were up 1.6 percent.
    Germany's DAX rose 0.2 percent, France's CAC 40 was
up 0.7 percent and Britain's FTSE 100 index was up 0.5
percent.
    It was a more mixed picture in Asia. MSCI's broadest index
of Asia-Pacific shares outside Japan rose 0.4
percent, largely as Chinese shares continued to rally on signs
that the economy was regaining momentum. But Japan's Nikkei
average hit a one-week low.
    The three main indices on Wall Street pointed to a higher
open on Monday of around a third of a percent  
. The S&P 500 fell 2.7 percent last week, its
biggest weekly decline in more than two years.
    
    FED FEARS EASE
    Europe's bond markets showed a similar sense of relief, with
yields on Portuguese, Spanish and Italian bonds all down by five
or six basis points  IT1-YT=RR.
    The rate-sensitive two-year notes yield was little changed
at 0.47 percent and the 10-year yield fell two basis
points to 2.49 percent.
    Bond yields were also capped by Friday's U.S. jobs data for
July, which showed job growth lower than forecast, the
unemployment rate higher than expected, and perhaps most
importantly almost no growth at all in average hourly earnings.
 
    A Reuters poll on Friday after the jobs data showed that a
majority of top Wall Street bond firms saw no rise in U.S.
interest rates before the second half of next year.
 
    There's been no shortage of reasons to keep investors on
their guard either, from Argentina's debt default last week to
the spreading violence and tension across the Middle East, to
the economic consequences of the West's sanctions on Russia.
    About 40 European blue-chips, including many German
companies, derive more than 5 percent of their revenues from the
Russian market.
    "We have lowered our euro area GDP growth projections in
response to deteriorating trade relations with Russia," Barclays
economists said in a note on Monday, now predicting 0.9 percent
growth this year, down from 1.0 percent, and 1.4 percent next
year, down from 1.6 percent.
    All major currencies were flat on Monday compared with late
New York levels on Friday. The euro was at $1.3417, off
last week's eight-month low of $1.3366, while the dollar stood
at 102.61 yen JPY=, off Wednesday's four-month peak of 103.15
yen.
    U.S. crude oil futures edged up to $98.04 per barrel,
recovering from a six-month low of $97.09 on Friday, and gold
was little changed at $1,291 an ounce.

 (Reporting by Jamie McGeever; Additional reporting by Tricia
Wright; Editing by Hugh Lawson; To read Reuters Global Investing
Blog click here; for the
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