European stocks rallied, with the Stoxx Europe 600 Index paring losses from May 14, as investors speculated that the region’s companies may shrug off measures to reduce sovereign deficits.
BP Plc climbed more than 1 per cent after saying it made progress in controlling an oil leak in the Gulf of Mexico. Banco Popolare Scrl surged 7.6 per cent after earnings beat estimates. Telefonica SA led telecommunication shares higher. Man Group Plc fell after agreeing to buy GLG Partners Inc for $1.6 billion. The Stoxx 600 rose 0.5 per cent to 249.71 as of 3.32 pm in London.
The measure plunged 3.4 per cent on May 14 as the euro slumped on speculation the European Union’s 750 billion-euro ($920 billion) emergency aid package won’t prevent the region’s debt crisis from spreading.
The single currency slid to the lowest level in more than four years against the dollar on Monday. “I am a believer in equities in the long-term,” said Robert Halver, head of research at Baader Bank in Frankfurt. “Germany as a leading industrial country is gaining momentum from a weak euro. Financial markets won’t be quiet until they see sustainable solutions and we are facing high volatility.”
While the euro has weakened, analysts lifted profit estimates for the next year for companies on the Euro Stoxx 50 Index by 2.5 per cent in April, the most since 2006, according to data compiled by Bloomberg. The index, a benchmark for the euro region, is trading at 10.2 times forecast income, below this year’s peak of 11.8.
Under pressure
European finance ministers, meeting in Brussels on Monday, are under pressure to show they can reduce deficits fast enough to satisfy investors and then police budgets effectively once targets are met. Spain and Portugal have already announced budget cuts. “There is a need for a quantum leap in the governance of the euro area,” European Central Bank President Jean-Claude Trichet said.
