Europe Short-Sales Ban Helps sentiment, Stocks Turn Firmer
European stock markets were holding onto gains Friday after another rollercoaster ride as nervous investors tried to get ahead of the curve and a short-selling ban in Europe helped the under-fire banks.
France, Italy, Spain and Belgium banned short-selling in bank stocks after rumors about their financial health saw them suffer massive losses in recent days and then Germany upped the ante by calling for a Europe-wide bar.
The move echoes steps taken at the height of the global financial crisis sparked by the collapse of Lehman Brothers in 2008.
Dealers were skeptical, however, it would have any long lasting effect given the deep underlying economic and debt problems in the United State and Europe which some fear could produce a new recession.
In Asian trade earlier Friday, markets were mixed as early gains made on Wall Street's jump of nearly four percent were eroded, reflecting the pattern of past weeks of wild swings as jittery investors follow the latest short-term lead.
In Europe, markets opened lower but as investors took on board the short-selling ban, banks got a boost and they moved into positive territory.
In early afternoon trade, London's FTSE-100 index of leading shares was up 1.55 percent, Frankfurt advanced 2.32 percent and Paris added 2.23 percent after weaker starts.
Milan was up 2.59 percent after a sharply weaker opening with Madrid up 2.57 percent as their banks rose strongly while Belgian gained 3.15 percent.
Swiss stocks jumped 3.99 percent as investors welcomed government moves to weaken the currency and so protect the exports which drive the economy.
The European Securities and Markets Authority said the short-selling ban was to "restrict the benefits that can be achieved from spreading false rumors."
Germany on Friday called for a Europe-wide ban after France, Italy, Spain and Belgium halted the practice in a bid to calm the volatility. Britain, however, said it had no plans to follow suit.
"It is the only way to tackle destructive speculation convincingly," a German finance ministry spokesman said.
Short-selling is when an investor gambles a share price will fall, agreeing to sell a stock at its existing price even before he actually owns it.
If the price then falls, the investor can buy the stock at the lower price just before agreed delivery to the buyer and pocket the difference.
Supporters claim the practice allows investors a hedge against risk but critics say it only adds to the downward pressure in falling markets and serves no real purpose beyond speculative trading for short-term profit.
Moneycorp analysts were unconvinced, saying: "And so it continues. Politicians are falling over themselves to make difficult decisions in response to the latest front-page headlines."
The short-selling ban, they said, would be totally ineffective as investors would find it easy to get around any restrictions.
Dealers said that whatever was done on the regulatory side, there was little the authorities could do about the underlying poor economic fundamentals which the debt crisis only makes worse.
Anita Paluch, a trader at etxcapital, noted that the Frankfurt DAX index "has lost over a 1,000 points (so far this month) ... as the fear over world economic growth spreads and confidence in the political leadership suffers massively."
She added that "there is evidence that the cracks in the Eurozone are widening even further and it is becoming increasingly harder to find a safe haven."
In Paris, a dealer at Aurel BCG said there was some cautious buying in the banks after their huge recent losses but investors were spooked by figures showing a sharp slowdown in French growth in the second quarter.
The data confirmed a widely held fear -- slow economic growth means European countries will not be able to stabilize their public finances despite taking tough austerity measures.
On that basis the Eurozone debt crisis, and similar problems in the United States, look to have a long way to go before being resolved.
"This isn't a volatile equity market. It is an extremely volatile equity market," said Patrick O'Hare of Briefing.com in New York overnight.
"The massive swings are symptomatic of a market that is racked with uncertainty and where every rumor is treated as truth until the real truth can set one free from the rumor. The cycle soon begins anew, though, when the next rumor hits the wires."
On the currency markets, the euro was firmer at $1.4269 while gold, the traditional safe haven in times of trouble, added $2.40 to $1,753.900 an ounce.
The benchmark oil contract, West Texas Intermediate for September, was down $0.15 at $85.57 per barrel.