European stock markets finished higher on Monday, buoyed by the banking sector's recovery during the session thanks to cheap buybacks and comments deemed reassuring by European Union supervisors.

In Paris, the CAC 40 ended up 1.27% at 7,013.14 points, after losing up to 1.9% earlier in the day.

The British Footsie gained 0.93% and the German Dax 1.12%.

The EuroStoxx 50 index advanced by 1.29%, the FTSEurofirst 300 by 1.03% and the Stoxx 600 by 1.03%.

Sunday's emergency rescue of Credit Suisse, which was taken over by UBS, triggered a wave of concern in the European financial markets.

In particular, the Swiss authorities' decision to give preference to Credit Suisse shareholders over holders of AT1 ("Additionnal Tier 1") or CoCo ("contingent convertible") bonds alarmed investors, who are used to losses being borne first by shareholders.

"AT1s are currently suffering from a major crisis of confidence", said Marco Pabst, Investment Director at Arbion.

Against this backdrop, EU supervisory authorities reiterated in a joint statement their recommendation that losses be absorbed by shareholders first, calming the nervousness around the banking sector somewhat.

Furthermore, in a coordinated move over the weekend, the major central banks promised to provide dollar liquidity to stabilize the financial system.

VALUES

Still reeling from Monday's shock, the Stoxx Banks Index rallied during the session, ending the day with a 1.21% gain, after dropping 6% earlier in the day.

Credit Suisse shares had another difficult day after the announcement of the takeover by UBS, plunging 55.7%. UBS, meanwhile, ended the day up 1.26%.

In Paris, Credit Agricole and BNP Paribas ended up by 0.66% and 1.70% respectively, after a difficult start to the session. Société Générale lost 0.82%.

At the top of the CAC 40, Thales advanced by 3.72%, supported by an upgrade of JPMorgan's recommendation to "outperform" from "neutral".

ON WALL STREET

At the time of closing in Europe, equity indices were in the green, again boosted by a rise in banking stocks, ahead of the Federal Reserve's monetary policy decision expected on Wednesday evening.

The Dow Jones gained 1.12%, the Standard & Poor's 500 0.73% and the Nasdaq 0.06%.

INDICATORS OF THE DAY

In France, economic growth looks set to be stronger than expected this year, and inflation a little less painful than expected, as the shock caused by energy prices begins to ease, the Banque de France said on Monday, forecasting growth of 0.6% in 2023 for the eurozone's second-largest economy, an improvement on its previous forecast of 0.3%.

The Bundesbank said on Monday that the German economy is likely to contract in the first quarter, and that the high level of underlying inflation will persist, even if overall price rises should soon slow significantly.

FOREIGN EXCHANGE

The "dollar index", which measures variations in the greenback against a basket of currencies, lost 0.34% as the easing of market tensions drove traders away from assets considered the safest.

The euro gained 0.49% to $1.0722.

RATES

Treasury bond yields rose sharply on Monday, as the Credit Suisse takeover and measures taken by central banks to boost liquidity allayed investors' concerns as they awaited the Fed's rate decisions.

The two-year US Treasury yield, the most sensitive to interest rates, gained over 13 basis points to 3.9805%, while the 10-year yield rose by ten basis points to over 3.5%.

In Europe, the two-year rate on German government bonds fell to 2.374%, after dropping as low as 2.089% earlier in the session.

The rate on ten-year debt ended virtually unchanged at 2.128%, after bottoming out at 1.923%.

OIL

Oil prices stabilized after dropping to their lowest level in 15 months on Monday.

Brent crude is stable at around $73.08 a barrel, while US light crude (West Texas Intermediate, WTI) is also unchanged at around $66.80.

TO BE CONTINUED ON TUESDAY:

(Edited by Blandine Hénault)

by Diana Mandia