LONDON—European stock markets posted mild gains Wednesday, with banking stocks leading the advance amid hopes of strong takeup of the European Central Bank's second long-term refinancing operation.
The benchmark Stoxx Europe 600 Index was recently trading 0.4% higher at 265.28. London's FTSE 100 was flat at 5925.33, but Paris's CAC 40 Index rose 0.4% to 3467.36 and Frankfurt's DAX gained 0.6% to 6926.87.
Banking stocks posted the strongest gains, as investors added exposure to the sector ahead of the LTRO by the ECB, due around 0515 ET. The Stoxx Europe 600 banks index gained 1.3%. Individually, Société Générale shares rose 1.8%, BNP Paribas added 1.9%, Deutsche Bank gained 1.2% and Banco Santander rose 1.1%.
In December 2011, the ECB announced that the LTRO program was available to banks who wanted it in an attempt to avert a funding crunch, drive sovereign bond yields back lower and relieve a blockage in the European banking system's credit channels. "European banks didn't need asking twice as they pounced en masse and hovered up €489 billion of loans with 523 banks taking part. The equity market rally since then, as well as falling bond yields, suggests that those actions had the required effect," said Michael Hewson, a market analyst with CMC Markets.
Deutsche Bank's strategist Jim Reid said that the focus will be on the gross takeup number of the LTRO, but the mix between rollover demand and additional ECB liquidity injected into the system is also important. "Such a number impacts credit growth and banks' ability to organically recapitalize themselves from any carry-trade opportunities. Factoring in rollover demand, refinancing needs and new lending/carry trades, our (Deutsche Bank's) rates strategists now expect a headline number somewhere between €425 billion to €550 billion."
Other than the LTRO, market participants will have their attention on harmonized euro -zone inflation data at 0500 ET, and the latest U.S. fourth-quarter gross domestic product report, due at 0830 ET, followed by Federal Reserve Chairman Ben Bernanke's semiannual testimony to the monetary-policy committee.
In Asia Wednesday, shares rose, with the Australian and Japanese bourses scaling multimonth highs and with Tokyo stocks supported by upbeat Japanese industrial production data. Japan's Nikkei Stock Average was up 0.1%, Australia's S&P/ASX 200 was up 0.8% and South Korea's Kospi Composite gained 1.3%. Hong Kong's Hang Seng Index added 0.5%, while the Shanghai Composite Index bucked the trend and fell 1%.
In the currency markets, the euro the was kept in a tight range against the dollar ahead of the ECB's long-term refinancing operation due later in the day. The common currency was recently fetching $1.3459 from $1.3457 late Tuesday in New York, and at ¥108.46 from ¥108.29. The dollar consolidated against the yen after pulling back from this week's nine-month high of ¥80.59, and was recently at ¥80.33 from Y80.46 in New York.
Elsewhere, spot gold was at $1784.70 a troy ounce, down $2.05 from its New York settlement on Tuesday. In the oil market, April Nymex crude oil futures, which dropped 1.9% Tuesday, were recently up 53 cents at $107.08 per barrel, while April Brent oil futures were up 93 cents at $122.48. Meanwhile, the March bund contract was down 29 ticks at 139.77.
Write to Ishaq Siddiqi at ishaq.siddiqi@dowjones.com
Deutsche Bank, ECB, European Central Bank, refinancing, refinancing, Hang Seng Index, European banks, Michael Hewson, BNP Paribas, CAC 40 Index
Mike Vaccaro
