Stocks get boost from big ECB loans to banks

REUTERS

A bull and a bear styrofoam figurine.

European stock markets extended gains Wednesday on a wave of pre-holiday optimism after the European Central Bank loaned a record amount to the continent's banks in an effort to bolster Europe's stressed financial system.

The ECB loaned a massive e489 billion ($639 billion) to 523 banks for an exceptionally long period of three years in an effort to steady a financial system under pressure from the eurozone debt crisis. It was the biggest ECB infusion of credit into the banking system in the euro's 13 year history.

The loans surpassed the e442 billion in one-year loans from June, 2009, when the financial system was struggling after the collapse of US investment bank Lehman Brothers.

The ECB is trying to make sure that banks have enough ready cash to operate and keep on loaning to businesses so that a credit crunch does not choke off economic growth. Many economists think the eurozone may be headed for at least a mild recession in coming months.

“Before equity investors get all excited about the ECB saving the day, I just want to point out that the ECB is not curing the banking illness, it is merely given banks an aspirin to take away the pain,” said Louise Cooper, markets analyst at BGC Partners.

Further help for Europe's bid to overcome its financial crisis came from Norway.

Norway said it will provide 55 billion kroner ($9.3 billion) to the International Monetary Fund to help heavily indebted nations avoid default.

Norway is not part of the European Union and its economy is cushioned by income from its oil and gas exports.

Still, Prime Minister Jens Stoltenberg noted that it's in Norway's interest to help European trading parties “who are now in a difficult economic situation.”

Eurozone countries have agreed to provide e150 billion to the IMF through bilateral loans. Some EU countries outside the eurozone have also pledged to contribute.

The extra IMF loans are meant to be channeled into a special fund that will invest alongside the eurozone's own bailout fund - the European Financial Stability Facility.

In Europe, Britain's FTSE 100 index of leading shares rose 0.5 percent to 5,444 while Germany's DAX gained 0.8 percent to 5,882. France's CAC 40 rose 0.9 percent to 3,083.

The euro was also buoyed, rising 0.7 percent at $1.3170.

Wall Street was also poised for gains at the open - Dow futures were up 0.6 percent at 12,100 while the broader S&P 500 futures rose 0.4 percent at 1,241.

Asian markets also rose, as positive signs from key Western export markets helped shore up sentiment that was jolted by Kim's death and fears of a possible power struggle in a country pursuing nuclear weapons. Seoul's main index plunged 5 percent on Monday before recovering.

Hong Kong's Hang Seng added 1.6 percent to 18,368.6 while China's benchmark Shanghai Composite Index ended down 1.1 percent at 2,181.15.

Analysts expect North Korea's Kim to be succeeded by his third son, Kim Jong Un. State media have stepped up lavish praise of the younger Kim, indicating an effort to strengthen a cult of personality around him similar to that of his father.

Ric Spooner, chief market analyst for Australia's CMC Markets, said strong European and US data were prompting investors to move back into stocks due to concern they might be caught on the sidelines if potential problems in the West fail to materialise and markets rebound. - Sapa-AP