Saturday 22 October 2016

European shares up, Glencore jumps on plan to cut debt

Published 07/09/2015 | 09:28

Traders talk in front of the German share price index DAX board at the stock exchange in Frankfurt, Germany
Traders talk in front of the German share price index DAX board at the stock exchange in Frankfurt, Germany

European shares bounced back on Monday from sharp declines in the previous session, boosted by mining and commodities trading firm Glencore which rose after announcing plans to cut its debt.

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The pan-European FTSEurofirst 300 index was up 0.8 percent at 1,404.12 points by 0758 GMT, after closing 2.5 percent lower on Friday when a mixed jobs report fuelled uncertainty about the timing of a likely U.S. rate hike.

Glencore shares surged 8 percent, the top gainer in Europe, after the company said it will suspend dividends, sell assets and raise $2.5 billion in a new share issue to cut its debt by a third to $20 billion by the end of next year.

"Concerns regarding the group's balance sheet have weighed heavily on the share price in recent weeks. Whilst uncertainties regarding prospects for China and its impact on the mining sector remain, Glencore management appear to be taking firm action to try and remove the company from the eye of the storm," Keith Bowman, equity analyst at Hargreaves Lansdown, said.

The company has been under pressure to cut debt as prices for its key products, copper and coal, have sunk to more than six-year lows on concerns about China's economic growth. Even with Monday's bounce, its shares are still down more than 50 percent this year after hitting record lows last week.

Other miners were also up, supported by a rise in prices of major industrial metals. The STOXX Europe 600 Basic Resources Index gained 2 percent, while Anglo American and Antofagasta rose 2 percent and 6 percent respectively.

"Bargain hunting traders and investors might well be eyeing up some very reasonably priced stocks that have been the victims of recent China-inspired volatility," Augustin Eden, analyst at Accendo Markets, said.

"While the fact remains that commodities are still under immense pressure and those who dig them up are too, blue-chip stocks trading at a discount like Glencore's provide an ideal vehicle for riding price swings."

Analysts said European equities remained vulnerable to further declines due to lingering concerns about the pace of economic growth in China, the world's top metals consumer.

China's stock market reopened after closing over Thursday and Friday as Beijing celebrated 70 years since the end of World War Two. Shanghai shares initially rose as much as 1.8 percent following remarks over the weekend by regulators aimed at calming the market, but the index was last down 1.6 percent.

China's policymakers and regulators tried to soothe jittery markets, promising deeper financial market reforms and stressing the economy was showing signs of stabilising.

Trading volumes in Europe are likely to be thin as U.S. markets were closed on Monday for a public holiday.

Across Europe, Britain's FTSE 100, France'c CAC and Italy's FTSE MIB rose 0.9 to 1 percent. Germany's DAX was up 1 percent, also helped by data showing German industrial output rose in July at its fastest pace this year, suggesting the engine room of Europe's largest economy made a robust start to the second half.

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