European shares rose on banking support after sharp sell-off

European shares rose on banking support after sharp sell-off

By Shreeshi Sanyal

(Reuters) – European shares rose on Thursday, buoyed by Spanish lenders after a report that Madrid may adjust bank tax, while markets also showed some signs of recovery from a sharp sell-off triggered by bets on hefty interest rate increases globally.

The index was up 0.4% as of 0808 GMT, after falling for two consecutive days, with European banks advancing around 2%. Eurozone banks jumped 2.5 percent to their highest level since June 10.

Shares of Spanish banks, including Bankinter, Sabadell and Caixabank, rose nearly 5% each after a local media report said Madrid is keen to avoid disputes with the European Central Bank and could adjust the bank’s tax.

Lenders are more likely to get the most out of a high interest rate environment Morgan Stanley (NYSE:) has upgraded the banking sector to “overweight,” citing cheap valuations and flexible earnings.

Hot US inflation data sparked a sell-off in global stock markets earlier in the week, as it reinforced views that the Federal Reserve will raise interest rates by another 75 basis points next week.

The European Central Bank raised its benchmark lending rate by 75 basis points last week.

“We can see that banks have continued to outperform, while high-multipliers technology and growth stocks have underperformed, which means the market is getting increasingly optimistic about not hampering economic growth,” said Sumit Kendorkar, a senior trader at Optiver in Amsterdam.

The European Central Bank is all about catching up with the Federal Reserve, which already has a strong tightening cycle in place since earlier this year. The STOXX 600 is down about 14% so far this year, which is a smaller loss compared to a 17% drop in the.

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Most sectors rose on Thursday, while defensive utilities led the losses, indicating a risk-taking mood in the markets.

The sudden shutdown of the pipeline to Europe by Russia has raised concerns about a harsh winter for Europeans, with the gas-importing utility sector bearing the brunt of the negative sentiment.

However, Germany’s Uniper rose 3.2% after a gas importer said the government may acquire a controlling stake in the company as it seeks more help.

High inflation in the eurozone has led to a cost-of-living crisis in the bloc, which has also undermined discretionary spending.

H&M fell 0.7% after the retailer reported lower-than-expected quarterly sales as shoppers tightened their belts amid rising energy and food bills and as it struggled to compete with rival Zara.

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