Europe: Banks lift shares after lacklustre start to week

[BENGALURU] European shares rose on Tuesday, boosted by gains in banks on prospect of aggressive interest rate hikes following hawkish comments by US Federal Reserve Chair Jerome Powell.

The pan-European Stoxx 600 gained 0.9 per cent after a lacklustre start to the week, helped by a 2.5 per cent jump in European banks.

Other cyclical sectors such as insurers and autos, preferred bets for a rising rates scenario, rose 2.0 per cent and 1.6 per cent respectively.

Powell said on Monday the central bank must move "expeditiously" to raise rates and possibly "more aggressively"to battle red-hot inflation, just as markets digested last week's 25-basis-point rate hike.

"Up until now, the Fed had been quite dovish... The fact that they are looking to do raise rates more quickly and more decisively has certainly bolstered the financial sector today,"said Danni Hewson, financial analyst at AJ Bell.

Money markets are now pricing an around 50 basis points of rate hikes by the European Central Bank (ECB) by the end of the year.

The ECB said earlier this month that it would not be in a hurry to raise rates but many conservative policymakers have argued that a rate hike, the first such move in over a decade, should remain on the table as inflation is not as temporary as the central bank once expected.

London's FTSE 100 index closed 0.5 per cent higher, helped by banking stocks. The oil exporter-heavy index pared some of its early gains after oil prices dipped as the dollar strengthened and it looked unlikely that the European Union would pursue an embargo on Russian oil.

The Stoxx 600 index has fallen more than 6 per cent so far this year, while the commodity-heavy FTSE 100 has outperformed with gains of 1.1 per cent during the same period.

Europe's largest online restaurant food ordering service Just Eat Takeaway.com gained 3.2 per cent on a partnership with McDonald's Corp to expand delivery.

Italian defence group Leonardo was 0.4 per cent higher after its US unit DRS agreed to sell its satellite communications business GES to SES for US$450 million.

Finland's Nokian Tyres said it would continue production in Russia to retain control of its local factory, at a time when many companies are halting operations in protest.

Shares of the company fell 0.3 per cent.

Tech giant SAP rose 0.6 per cent after announcing a venture with Boston Consulting Group to help some of the world's biggest companies overhaul their business strategy and accelerate their efforts to cut carbon emissions. REUTERS