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Europe: Euro zone shares supported by recovery plan, banks jump
[BENGALURU] Euro zone stocks were buoyed on Wednesday by a 750-billion-euro (S$1.17 trillion) plan to prop up EU economies hammered by the coronavirus crisis, but falls for healthcare and technology stocks weighed on broader European markets.
The euro zone equities index finished 1.1 per cent higher after jumping as much as 1.6 per cent, while the pan-European Stoxx 600 closed up 0.2 per cent.
Under the proposal, the European Commission would borrow the funds from the market and then disburse two-thirds in grants and the rest in loans, with much of the money going to Italy and Spain, the worst affected by the pandemic.
Spain's banking-heavy IBEX jumped 2.4 per cent, with Banco Santander SA and BBVA rising 4.9 per cent and 3.4 per cent respectively.
Euro zone banks climbed 4.8 per cent, with French lenders BNP Paribas SA and Societe Generale SA leading gains. Italy's banking index rose 2.6 per cent.
"The size of the market reaction is relatively modest if you compare it to the plan itself, but that is because there were quite some expectations in the market," said Elwin de Groot, head of macro strategy at Rabobank.
"We really have to see this is a reaction to the size of the programme being bigger and the European Commission not being deterred from the opposition that is visible in some member states."
A Franco-German proposal for 500 billion euros in grants last week faced some resistance from more frugal northern nations, which wanted only loans.
Aside from banks, other hard-hit sectors including travel and leisure and automakers rallied.
Renault jumped 17.5 per cent after the French carmaker and Nissan Motor Co doubled down on a plan to cooperate on production to save costs and salvage their troubled alliance.
Easing of lockdowns in several European countries and improving economic data have spurred buying in growth-exposed cyclical sectors in recent weeks, putting European stocks on course for a 2.8 per cent gain in May.
"European investors are really focusing on the reopening and that's gathering some momentum," said Ian Williams, strategist at Peel Hunt.
"With the cyclicals, the most extreme risks seem to have been priced in and people are looking for some cheaper opportunities."
But the healthcare and technology sectors, which have been resilient during the coronavirus crisis, dropped 2.5 per cent and 1.4 per cent respectively.
Also keeping investors on edge are protests in Hong Kong over new national security laws proposed by Beijing and US President Donald Trump's warning of a strong response to China's move.