* FTSEurofirst 300 up 1 percent
* Banks boosted by hopes of euro zone agreement
* Caution remains ahead of Dec.9 meeting
By Francesco Canepa
LONDON, Dec 2 European shares rose on
Friday, recording their biggest percentage weekly gain since
late 2008 on hopes euro zone leaders were coming together to
find a solution to the debt crisis.
The STOXX Europe 600 Banking Index rose 4.3 percent
after French President Nicolas Sarkozy said he and German
Chancellor Angela Merkel would put forward joint proposals to
achieve greater fiscal integration in Europe and support
countries in difficulty.
"We're many miles away from a resolution of this situation
in Europe, so we have to be very wary about these sort of moves
(in share prices)," Richard Jeffrey, chief investment officer at
Cazenove Capital, said.
"What you can say is that the move you have seen this week
indicates a strong level of underlying support for equities
(and) on valuation grounds that's certainly justified," added
Jeffrey, who helps manage around 15 billion pounds ($23.4
Euro zone lenders, which own the largest share of
the bloc's sovereign debt, surged 5.3 percent, ending the week
up 16.5 percent after losing nearly half of their value since
Germany's Commerzbank and France's BNP Paribas
, both up around 10 percent, were among the top gainers
after unveiling key management changes.
They helped the FTSEurofirst 300 close 1 percent higher at
985.34, for a weekly gain of 8.5 percent, after a 21 percent
drop since July.
The index trimmed gains in the afternoon after U.S. jobs
data, which fell short of suggesting a significant quickening of
the recovery in the world's largest economy. The U.S.
unemployment rate fell to a 2-1/2 year low but the number of
jobs created was modest.
Merkel and Sarkozy's proposals, due to be unveiled at an EU
meeting on Dec. 9, are expected to include the introduction of
coercive powers to reject national budgets and impose automatic
sanctions on serial deficit sinners.
These measures are seen as preconditions for Germany's
backing of greater intervention by the European Central Bank to
ease pressure on sovereigns and banks.
"My fear remains, and fears means a two-thirds probability,
that whatever they come up with now is good but not good enough,
and in January an escalating crisis will then force the ECB to
pull out all the stops," Holger Schmieding, chief economist at
Berenberg Securities, said.
Schmieding added he was wary of current market euphoria,
noting hopes of an imminent solution to the debt crisis had
repeatedly triggered illusory equity rallies earlier this year.
His fears are shared by Jack Jonk, head of equities at Delta
Lloyd Asset Management, which manages around 40 billion euros in
assets, of which around 10 billion euros is in equities.
Jonk said his firm remained "underweight" equities across
its cross-asset mandates and that the strong relief rally in
recent days was still susceptible to further declines as
politicians grapple with the debt crisis.
As uncertainty in Europe persisted and the region's economic
outlook deteriorated, UBS recommended stocks with global
exposure, such as Rio Tinto, Pearson and
(Additional reporting by Simon Jessop, Brian Gorman and Blaise
Robinson; Editing by David Holmes)
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