European Indexes Higher; IMF Offers More for Euro Bailout

Arthi Gupta
07 Dec, 2011
New York City

European indexes edged higher ahead of the two-day EU summit and European policymakers contemplate a second bailout fund with $50 billion from the IMF. Germany sold

[R]1:40 PM Frankfurt – European indexes edged higher ahead of the two-day EU summit and European policymakers contemplate a second bailout fund with $50 billion from the IMF. Germany sold €4.09 billion of five-year bonds at higher yield.[/R]

European indexes gained ahead of the upcoming EU summit in Brussels tomorrow on the hopes that leaders will offer some concrete measures.

In early trading stocks traded higher on the reports that European officials are discussing the possibility of boosting the region''s ability to contain the debt crisis by operating two bailout funds.

The idea of a much stronger bailout fund is expected to be proposed along with the plan on revising existing treaties to strengthen budget rules across the euro area when leaders from 27 countries meet later this week.

Euro-zone leaders are preparing to use two independent bailout funds with a larger support from the International Monetary Fund, according to sources in the European Commission. The leaders are also looking for ways to accelerate the purchase of sovereign bonds by the European Central Bank.

IMF is expected to contribute as much as $50 billion in the fund, according to the sources in Washington, D.C.

Furthermore, negotiators are considering allowing the euro-zone''s existing €440 billion European Financial Stability Facility to continue running alongside the new €500 billion European Stability Mechanism to be introduced in mid-2012.

Standard & Poor''s said it may cut the triple-A status of the EU''s bail-out fund, the EFSF, by one or two notches because its key financial backers, the six triple-A euro-zone countries are at risk of contagion in the financial crisis.

In another report, the European Financial Stability Facility will auction 3-, 6- or 12-month bills to increase its funding flexibility. The first auction is expected to take place before year end.

In Paris trading, the CAC-40 Index gained 27.88 or 0.9% to 3,207.51 and in Frankfurt the DAX Index edged higher 31.05 or 0.5% to 6,059.81.

The German Treasury today sold €4.09 billion of five-year bonds, versus its target of €5 billion.

Demand of €8.67 billion was stronger compared to the €6.075 billion in a previous auction on November 23. The bid-to-cover ratio improved to 2.1 from 1.5 at the last auction.

The average yield of the debt on sale rose to 1.11%, from 1.0% on the previous occasion.

French Deficit Narrows

The French trade deficit declined in October due to an increase in exports, the customs office reported today.

The trade deficit narrowed to €6.25 billion in October, from a revised €6.57 billion shortfall logged in September.

German Industrial Production Rebounds

German industrial production rebounded in October, data from the Federal Ministry of Economy and Technology showed.

Industrial production grew 0.8% on a monthly basis in October after falling 2.8% in September.

Gainers & Losers

Air France-KLM SA rose 1.9% to €4.43 after the airline said traffic for November rose 2.5% to 16.85 billion revenue passenger per kilometers from 16.44 billion RPKs in the prior year. Load factor for November was 79.7% versus 79.1% a year ago.

ING Groep NV slumped 3.8% to €6.06 after the Dutch insurer said it expects to incur charges of €0.9 billion to €1.1 billion in the fourth quarter stemming from the closed annuity business in the U.S.

SABMiller Plc dipped 0.04% to 2,233 pence after the UK traded brewer said it intends to appoint Ari Mervis as Chief Executive Officer of Australian beer maker Foster''s Group Ltd. following its acquisition.

Thales SA gained 0.6% to €23.29 after the defense electronics group said it will buy Tampa Microwave, a privately held communications equipment design and manufacturing firm.

Total SA climbed 0.8% to €38.96 after the French oil producer said it will acquire GDF Suez''s interest in the Elgin/Franklin fields in the North Sea for €590 million.