Stress Test Buoys Markets, But Not For Long

Financial markets have largely welcomed the results of the European Central Bank's stress test, but gains made in early trading were tempered by a slump in German business confidence.

European shares, low-rated government bonds and the euro currency all rose early on Monday on better-than-expected results of the ECB's banking stress test, but those gains were contained after key German data showed a downturn in business confidence.



Eurozone banks led an early trading rally, with the Euro STOXX banking index up 1.1 percent and the pan-European FTSEurofirst 300 index up 0.7 percent shortly after 8 a.m. (0700 GMT).



The euro was trading at $1.2714 at one point in the morning, before dipping back down to $1.2697. Last week Friday it was trading at $1.2659.



But those shares erased their gains mid-morning when a German think tank said business confidence in Europe's largest economy had hit its lowest level in almost two years.



Shortly after 9 a.m., the FTSEurofirst 300 had fallen back down to 1,314.84 points after trading as high as 1,324.50 points. German Bund futures were also trading higher, having erased their losses seen earlier in the day.



Stress test relief



Investors were pleased that less than one in five eurozone lenders failed the central bank's landmark review - and of those that flunked, most had already repaired their finances.



"One good sign was that a big part of the required capital has already been raised," said Francois Savary, chief investment officer at Swiss lender Reyl.



Germany's blue-chip DAX-30 rose by almost 1 percent as investors returned to risk after Sunday's announcement, moving closer to 9,100 points in early morning trading.



Shares of the country's largest lender, Deutsche Bank, climbed by about 3 percent, while those of the second largest, Commerzbank, surged by more than 9 percent after receiving a passing grade from the ECB.



The worst performer of the health check was Italy's Banca Monte dei Paschi, with a lack of 2.1 billion euros ($2.7 billion) in required core capital. The lender's stock dropped by 15 percent, while the Italian benchmark index on the whole was up by around half a percent.



hg/cjc (dpa, AFP)