European bourses rally as euro falls, bank shares gain

European stock markets rallied Tuesday, staging a turnaround as financial shares advanced sharply and the euro lost ground against the U.S. dollar.

The Stoxx Europe 600 gained 2.2% to close at 344.12, with all sectors gaining ground after sloughing off opening losses. The pan-European benchmark on Monday closed 0.4% lower.

Regional equities strengthened as the euro traded below $1.12, buying $1.1147 compared with $1.1228 late Monday in New York. The dollar headed higher Monday after some Federal Reserve officials suggested the central bank could resume raising rates as soon as its June meeting.

A pullback in the euro can be beneficial for European exporters, as their products become less expensive and presumably attractive to holders of other currencies.

Stocks in the export-heavy German market headed higher, pushing the DAX 30 up 2.2% to 10,057.31. Auto maker BMW AG picked up 1.9%, Volkswagen AG rose 4% and Heidelberg Cement AG tacked on 2.6%.

German stocks remained higher even after a key reading of German economic sentiment unexpectedly fell in May. The ZEW Institute’s economic-sentiment indicator came in a 6.4 compared with a FactSet estimate of 12. Respondents pointed to uncertainties around the June 23 in/out “Brexit” referendum in the U.K. Britain is deciding if it should stay in the European Union and that’s weighing on business sentiment in the region.

“Overall, today’s ZEW reading is consistent with our baseline scenario that the German economy should continue to grow at a healthy pace of 0.5% [quarter-over-quarter] in Q2 mainly driven by domestic consumption and investment, but decelerating slightly from the strong Q1 reading of 0.7% [quarter-over-quarter],” said economists at Barclays in a note.

The pound jumped 1% to above $1.4600 after a new poll showed waning support for the U.K. leaving the EU.

Banks: Augustin Eden, market analyst at Accendo Markets, said European stocks appeared to have been injected early Tuesday with “a little bit of confidence” from an appearance by UBS AG Chairman Axel Weber on CNBC. Weber said he’s hopeful for a pickup in trading activity in the second half of the year, after the U.K. holds its June 23 referendum.

Weber also spoke about the difficult conditions for the European banking sector as of late.

Among bank shares, Banca Monte dei Paschi di Siena SpA jumped 11%, Société Générale SA gained 5.4%, Barclays PLC added 3.2% and Commerzbank AG climbed 2.7%.

Deutsche Bank AG gained 2.6%, brushing past a ratings downgrade by Moody’s late Monday.

Greek bailout meeting: Eurozone finance ministers are meeting in Brussels today to try to hammer out an agreement on whether Greece should pass its first review of the third bailout program agreed last year. The Eurogroup discussion will likely focus first on whether the austerity reforms passed by Greek lawmakers at the weekend are enough to unlock 11 billion euros of bailout loans, and then on the potential for debt relief.

Greece’s Athex Composite dropped 1.1% to 642.08 as eurozone finance ministers headed into the talks.

Indexes: France’s CAC 40 moved up 2.5% to 4,431.52. Italy’s FTSE MIB was up 3.3% at 17,903.97 and Spain’s IBEX 35 rose 2.3% to 8,918.10.

The U.K’s FTSE 100 picked up 1.4% at 6,219.26.

Source: MarketWatch

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