European stocks rally on US bank bailout plans

European stocks rallied in early trade on Friday as a rescue package to shore up ailing US lender First Republic Bank restored some confidence in bank stocks.

The regional Stoxx 600 rose 1 percent, while Germany’s Dax and France’s Cac 40 gained 0.9 percent. Britain’s FTSE 100 rose 1.2 percent.

The banking sector, which saw big sell-offs during the week, recovered somewhat, with the Euro Stoxx Banks Index gaining 2.3 percent. Credit Suisse rose 3.7 percent after pledged liquidity support from the Swiss National Bank on Wednesday.

US futures were moderate on news that ailing bank First Republic is being backed by a banking consortium that will inject $30 billion into the ailing lender.

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each contribute $5 billion. Goldman Sachs and Morgan Stanley will each inject $2.5 billion, while BNY Mellon, PNC Bank, State Street, Trust and US Bank will each inject $1 billion.

“The US intervention at the weekend is helping to curb fears of contagion. What the market is telling us is that this is not systemic, but inherently difficult to assess as there is no long-term solution for now,” said Nadège Dufossé, Global Head of Multi-Asset at Candriam.

Futures tracking the blue-chip S&P 500 rose 0.3 percent, while contracts for the tech-heavy Nasdaq also rose 0.3 percent. The S&P 500 posted its biggest one-day gain since January on Thursday.

Shares of First Republic closed down 10 percent on Thursday and then fell 7.2 percent in premarket trading.

The European Central Bank on Thursday announced its decision to hike interest rates by 50 basis points, despite the financial turmoil that had prompted investors to speculate whether it might pause its agenda. However, it scrapped an earlier pledge to “significantly raise interest rates at a steady pace.”

The ECB’s decision has fueled bets that the Federal Reserve will push ahead with a 25 basis point rate hike rather than a pause. Investors are pricing in an 81 percent chance of a quarter-point rise.

Government bond markets were subdued, with two-year Treasury bill yields, which are most sensitive to interest rate expectations, rising 0.03 percentage point to 4.16 percent and 10-year note yields falling 0.03 percentage point to 3.55 percent.

Two-year Bund yields rose 0.04 percentage point to 2.6 percent and 10-year contracts were flat at 2.24 percent.

Asian markets rallied after also being hit by fears of a banking crisis this week. Japan’s Topix was up 1.2 percent, South Korea’s Kospi was up 0.7 percent and Australia’s S&P/ASX 200 was up 0.4 percent. Hong Kong’s Hang Seng and China’s CSI 300 rose 1.6 percent and 0.5 percent, respectively.

In currency markets, the dollar index, a measure of the greenback against six peer currencies, fell 0.4 percent. The euro rose 0.4 percent and the pound sterling rose 0.3 percent.

Brent crude and its U.S. equivalent West Texas Intermediate rose 0.7 percent after falling to their lowest price in more than a year on Wednesday. European stocks rally on US bank bailout plans

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