European stocks ended higher on Tuesday, hitting a one-week closing high, boosted by talk of further steps by the European Central Bank to support the region's banks as well as by hopes of fresh measures from China to cushion a slowdown in growth. Cyclical stocks led the rally, with Volkswagen up 4.3 percent, ArcelorMittal up 4.1 percent and Alstom up 4 percent.
The FTSEurofirst 300 index of top European shares closed 0.7 percent higher at 990.99 points, adding to a tentative recovery rally started last week. The euro zone's blue chip Euro STOXX 50 index gained 0.6 percent, to 2,160.31 points, after running into strong resistance at 2,169.89 points, representing the 23.6 percent Fibonacci retracement of the index's drop from late April to mid-May. Spain's IBEX index lost 2.3 percent, to 6,251.7 points, but managed to end the session off a nine-year low hit during the day, helped by speculation that the ECB could soon unveil measures to help the euro zone's ailing banks. ECB officials declined to comment on the speculation of further action to boost the banks.
"The rumour mill has been busy, with talk of an ECB press conference about bank recapitalisation, supporting the euro and giving euro zone stocks upside momentum. We do not believe in it, for the record," said Saxo Bank Chief Economist Steen Jakobsen, in Copenhagen.
"Spain is now the main focus, it's on the brink of collapse. Just look at 10-year bond yields for now, I still think the stock market's low will come in July or August, with some 'hope rallies' in between." Sources said on Tuesday Spain could recapitalise nationalised lender Bankia by issuing new debt, highlighting the risks to the country's precarious finances from the over-extended banking sector. Spanish 10-year bond yields were trading at around 6.5 percent on Tuesday, not far from 7 percent, a level where Portugal and Ireland had to start considering a bailout.
For Valerie Gastaldy, head of Paris-based technical analysis firm Day By Day, the IBEX is sinking towards the psychological level of 6,000 points, which represents a target triggered by the break-out of a triangle pattern on the index's chart in early April. "The IBEX has been trading below 2009 lows at 6,750 points for about two weeks now, and prices did not manage to climb back above that major level yet. On the contrary, we have had regular lower closing prices," Gastaldy said.
"The trend is taking us slowly to the target at around 6,000 points. This is not a significant horizontal support, and may only prove a temporary support. It's hard to stop a bearish trend once ignited." The IBEX has plummeted 27 percent so far this year, hit by mounting fears over the country's ability to lower its deficit and fix its banks after a property boom burst four years ago. "The index is obviously under the pressure of its banks, but there is not much hope to expect from Telefonica, its largest cap, nor Iberdrola nor Repsol. Inditex is the only stock that is still in a medium uptrend," the chartist said.
Earlier in the European session, stocks rallied strongly after local media reports in China mentioning unconfirmed talk that Beijing was readying a fresh round of fiscal stimulus to bolster growth in the world's No. 2 economy. By the end of the trading day in China, local media were citing a microblog reference to a news briefing, purported to have been held by the National Development and Reform Commission (NDRC) - China's top economic planning agency - denying that a stimulus package like that of 2009-10's 4 trillion yuan ($635 billion) plan was in the pipeline. The original Twitter-like microblog entry, reported by local media to have been on the official Xinhua microblog, could not be found when checked by Reuters. There was no mention of it on the Xinhua newswire or its public website.
The NDRC website carried no reference to the report, or a news conference and declined to comment when contacted by Reuters. The later Chinese media reports cited the NRDC as saying there had been a misinterpretation of announcements on May 21 of approvals for 91 new projects as a signal of China fast-tracking government investment to boost its slowing economy.
The reports cited the planning agency as saying the projects had nothing to do with efforts to stabilise economic growth. China's main news portal, www.sina.com, also cited a document from the NDRC branch in central Hunan province as saying that China would not roll out huge investment, as seen in the previous stimulus package, and Beijing would not relax property tightening policies, blamed by many for slowing domestic activity. The NDRC's Hunan branch, which held a provincial meeting on Tuesday morning, was conveying messages from the central leadership, the sina.com report said.