PARIS, Dec 10 (Reuters) - European stocks reversed losses on Monday, helped by bank shares as news of UBS’s UBSN.VX capital injection and a $10 billion writedown shed more light on the sector’s exposure to the troubled U.S. subprime mortgage market.
Also buoying the mood, Lafarge LAFP.PA, the world’s biggest cement maker, surged 11 percent as investors cheered its acquisition of Egypt’s Orascom Cement for 8.8 billion euros, a deal that will boost Lafarge’s exposure to emerging markets.
By 1053 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 0.4 percent at 1,545.04 points. Europe's benchmark index is up 4.2 percent so far in 2007, on track to record its worst yearly performance since 2002.
Philips (PHG.AS) was a standout gainer, rising 5 percent after two U.S. hedge funds said they want to talk to the firm on its operating performance and capital structure, the latest Dutch company to be targeted by activist shareholders.
UBS gained 2.5 percent after unveiling $10 billion in fresh subprime writedowns and saying it had obtained an emergency capital injection from a Singapore government entity and an unnamed Middle East investor.
“If you look at where banking stocks are now on the year, you see that the panic movement has already happened,” said Romain Boscher, head of equity management at Groupama Asset Management.
“The question is how big the subprime-related writedowns are and if a capital injection is necessary. The size of the loss is huge but that’s what people had expected, and it comes with a capital injection as a solution, as we also saw with Citigroup.”
The DJ Stoxx European banking index .SX7P, which was up 1 percent on the day, has lost 12 percent so far this year, as fears that a debacle in the U.S. subprime mortgage market as well as tight credit conditions would hit banks’ profits.
On the year, UBS is down 21 percent, RBS down 27 percent and Deutsche Bank down 9 percent.
“There has recently been a pause in the slump in banking shares as a lot of negative news have already been priced in, but we don’t have the feeling that the bleeding is completely over,” said Jean Claude Petit, head of equities at Barclays Wealth France.
Rio Tinto (RIO.L), the target of an offer from BHP Billiton BLT.L, fell 0.6 percent.
The Daily Telegraph newspaper reported that investment group Blackstone (BX.N) is planning a counterbid for Rio Tinto, with a consortium believed to include a Chinese sovereign wealth fund.
UK newspapers said on Saturday Brazilian miner Vale VALE5.SA has hired bankers to consider a bid for UK-listed rival Xstrata XTA.L. Xstrata tacked on 0.3 percent.
On the macro front, investors braced for an interest rate decision by the U.S. Federal Reserve due on Tuesday.
The Fed is widely expected to cut rates by 25 basis points, and investors will comb the accompanying statement seeking clues on the outlook for rates. (Editing by Louise Ireland)