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European markets stage rally

The FTSE 100 was up almost 3 per cent this morning as numerous European markets rallied on the back of yesterday’s decision by central banks to cut interest rates.

At 9:16 the FTSE 100 stood at 4495.49, a rise of 128.80 points, while the French Cac 40 And Germany’s Dax also rose 3 and 2.32 per cent respectively.

However, the decision by the central banks to cut rates did not produce the desired response in the US as the Dow Jones closed 2 per cent down at 9258.10.

Banks led the FTSE 100 rally with HBOS jumping 26.5 per cent, while shares in Royal Bank of Scotland jumped 18 per cent. The FTSE 100 closed over 5 per cent down yesterday as fears of recession continued to hit investor confidence.

Hargreaves Lansdown market analyst Richard Hunter believes the rally indicates cautious optimism.

He says: “There is talk that the US is to follow the UK in offering to take stakes in banks, however investors will continue to watch and wait as the details of the $700bn bailout seep through, while in the UK we wait to see if the banks will accept the Governments offer to take stakes in them. The optimism comes as co-ordinated base rate cuts are bound to cause market traction sooner or later.”

Schroders’ head of European equities Gary Clarke says: “We are unlikely to be offered a reprieve from the market volatility until the current ‘banking paralysis’ is resolved. At the beginning of the week, policy measures were piecemeal and, for the most part, reactionary. The collective movement on interest rate cuts we witnessed on Wednesday was the sort of coordinated action by central banks and governments that will remain fundamental for providing a viable solution to the crisis.
 
“We would look for further interest rates cuts going forward. Initial cuts are unlikely to filter through to the end consumer and corporates until the cuts are big enough to ensure that banks will pass them on. However, initial cuts should act as a catalyst to re-inject confidence into the system and improve banks’ profitability and capital bases over time.

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