GLOBAL MARKETS-European bank relief lifts stocks, lowers bond yields
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 MacroScope Blog click on blogs.reuters.com/macroscope; for Hedge Fund Blog Hub click on blogs.reuters.com/hedgehub)
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