European shares rise for second day

European stocks rose for a second day amid speculation policy makers will reach agreement to contain the sovereign-debt crisis and as the Bank of England expanded its bond-purchase program.

The Stoxx Europe 600 Index climbed 1.2 per cent to 226.92 at 3.17pm in London. The benchmark gauge gained 3.1 per cent yesterday as investors speculated that euro-area policy makers are working on plans to boost bank capital. The gauge had declined 5 per cent in the previous three days, leaving it trading at 9.1 times estimated earnings, near the cheapest since March 2009, data compiled by Bloomberg show.

"The market optimism may be explained by new initiatives that have emerged as part of efforts to quell both the sovereign debt and the banking crises," said Stephane
Ekolo, chief European strategist at Market Securities in London. "The bond- purchase announcement was a good move by the Bank of England as the economy still faces downside risks stemming from the sovereign-debt crisis."

National benchmark indexes rose in all of the 18 western European markets except Denmark. France's CAC 40 Index and the UK's FTSE 100 Index both advanced 1.7 per cent. Germany's DAX Index added 0.7 per cent.

Stocks extended gains today as European Commission president Jose Barroso said in a video question-and-answer session that the commission is proposing coordinated action to recapitalize banks.

German chancellor Angela Merkel said that the euro area will only use its rescue fund as a last resort to save banks and that investors may have to take deeper losses as part of a Greek rescue. Dr Merkel's comments, her most explicit on banks' role in fighting the debt crisis since the spillover from Greece began to threaten France and Italy, followed talks with Mr Barroso in Brussels.

The Bank of England expanded its bond-purchase plan for the first time in almost two years as government budget cuts and Europe's debt crisis jeopardise Britain's economic recovery. The nine-member Monetary Policy Committee raised the ceiling for so-called quantitative easing to £275 billion from £200 billion.

Bloomberg