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Euro zone shares supported by recovery plan, banks jump

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05/27/2020 | 12:39pm EDT
A trader sits in front of the computer screens at his desk at the Frankfurt stock exchange

By Sruthi Shankar

Euro zone stocks were buoyed on Wednesday by a 750-billion-euro ($824 billion) plan to prop up EU economies hammered by the coronavirus crisis, but falls for healthcare and technology stocks weighed on broader European markets.

The euro zone equities index finished 1.1% higher after jumping as much as 1.6%, while the pan-European STOXX 600 closed up 0.2%.

Under the proposal, the European Commission would borrow the funds from the market and then disburse two-thirds in grants and the rest in loans, with much of the money going to Italy and Spain, the worst affected by the pandemic.

Spain's banking-heavy IBEX jumped 2.4%, with Banco Santander SA and BBVA rising 4.9% and 3.4% respectively.

Euro zone banks <.SX7E> climbed 4.8%, with French lenders BNP Paribas and Societe Generale SA leading gains. Italy's banking index <.FTIT8300> rose 2.6%.

"The size of the market reaction is relatively modest if you compare it to the plan itself, but that is because there were quite some expectations in the market," said Elwin de Groot, head of macro strategy at Rabobank.

"We really have to see this is a reaction to the size of the programme being bigger and the European Commission not being deterred from the opposition that is visible in some member states."

A Franco-German proposal for 500 billion euros in grants last week faced some resistance from more frugal northern nations, which wanted only loans.

Aside from banks, other hard-hit sectors including travel and leisure and automakers rallied.

Renault jumped 17.5% after the French carmaker and Nissan Motor Co doubled down on a plan to cooperate on production to save costs and salvage their troubled alliance.

Easing of lockdowns in several European countries and improving economic data have spurred buying in growth-exposed cyclical sectors in recent weeks, putting European stocks on course for a 2.8% gain in May.

"European investors are really focusing on the reopening and that's gathering some momentum," said Ian Williams, strategist at Peel Hunt.

"With the cyclicals, the most extreme risks seem to have been priced in and people are looking for some cheaper opportunities."

But the healthcare and technology sectors <.SX8P>, which have been resilient during the coronavirus crisis, dropped 2.5% and 1.4% respectively.

Also keeping investors on edge are protests in Hong Kong over new national security laws proposed by Beijing and U.S. President Donald Trump's warning of a strong response to China's move.

($1 = 0.9107 euros)

(Reporting by Sruthi Shankar in Bengaluru; Editing by Alison Williams and Mark Potter)

Stocks mentioned in the article
ChangeLast1st jan.
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. -2.45% 3.226 End-of-day quote.-35.26%
BANCO SANTANDER, S.A. -2.97% 2.2675 End-of-day quote.-39.21%
BNP PARIBAS -2.40% 36.36 Real-time Quote.-29.51%
EXTREME CO.,LTD. -1.10% 1613 End-of-day quote.-17.28%
IBEX 35 -1.44% 7447.4 End-of-day quote.-22.01%
NISSAN MOTOR CO., LTD. -3.74% 398.8 End-of-day quote.-37.31%
RENAULT -4.79% 21.985 Real-time Quote.-45.01%
SOCIÉTÉ GÉNÉRALE -2.33% 15.176 Real-time Quote.-49.74%
STOXX EUROPE 600 -0.57% 366.94 Delayed Quote.-11.27%
STOXX EUROPE 600 NR -0.55% 803.86 Delayed Quote.-9.95%
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