European Stocks Rise

European stocks advanced after the euro-area central bank (ECB) unexpectedly cut the benchmark interest rate and Greek Prime Minister George Papandreou indicated that he will not call a referendum on the European bailout package.

National Bank of Greece SA led the country’s lenders higher. Swiss Re Ltd. and Man Group Plc (EMG) gained more than 2 percent after reporting higher-than-expected earnings. Cable & Wireless Communications Plc (CWC) jumped 7.8 percent after saying restructuring is ahead of schedule.

The benchmark Stoxx Europe 600 Index rose 2.1 percent to 242.2 at the close in London, after the European Central Bank’s rate decision. This was after they erased earlier losses amid speculation that Greece will cancel the referendum as Papandreou’s ruling Pasok party split over the question.

National benchmark indexes gained in 17 of the 18 western European markets, with France’s CAC 40 climbing 2.7, Germany’s DAX added 2.8 percent, and U.K.’s FTSE 100 rallied 1.1 percent. The ECB unexpectedly cut interest rates as Italian and Spanish borrowing costs soared after euro-area leaders raised the prospect of Greece leaving the monetary union. Meeting under the presidency of Mario Draghi for the first time, ECB officials cut the benchmark interest rate by 25 basis points to 1.25 percent.  This move surprised economists, most of whom expected a much smaller cut, if any.

Papandreou indicated he won’t call a referendum calling into question Greece’s membership of the euro, saying instead he will reach out to the opposition about forming a transitional government. The Greek prime minister said the country belongs in the Eurozone and welcomed support shown by the main opposition New Democracy party for last week’s rescue agreement agreed with EU leaders in Brussels. Crisis talks ended late yesterday with the German Chancellor and French President withholding 8 billion euros ($11 billion) of assistance and warning Greece it will lose all European aid if it votes against the package agreed upon only last week.

In the U.S., Federal Chairman Ben Bernanke signaled additional monetary stimulus may be necessary to lower U.S. unemployment as policy makers projected little acceleration in growth after last quarter’s pickup.
Potential actions are “on the table,” including a third round of securities purchases, extending the period of record- low interest rates or being more specific about when rates would rise, Bernanke stated at yesterday’s press conference.
The chairman warned that economic improvement will probably be “frustratingly slow,” with policy makers forecasting a 1 percentage-point drop in the jobless rate to about 8 percent over two years.