European Stocks Rebound From Six-Month Low; Mining Share Rally

May 24 (Bloomberg) — European stocks rebounded from a six- month low, led by gains in mining shares, amid speculation equities may have fallen too far on concern about the region’s debt crisis.

Rio Tinto Group led gains in basic-resource producers as base metals climbed in London. Barratt Developments Plc rallied 2.1 percent after JPMorgan Chase & Co. recommended Britain’s biggest homebuilder by volume. Banco Bilbao Vizcaya Argentaria SA led Spanish lenders lower after a regional bank was placed into under the administration of the government’s bank restructuring fund.

The Stoxx Europe 600 rose 0.3 percent to 237.92 at 3:27 p.m. in London, after tumbling last week to the lowest level since November. The gauge is trading at less than 15 times the reported earnings of its companies, near the cheapest valuation since 2008.

“Valuation investors will come in but won’t come in with all their chips right now,” Mark Tinker, a portfolio manager at Axa Framlington Ltd. in London, said in a Bloomberg Television interview. “The political response to what is going on in Europe is dangerous and that is why the market is nervous.”

National benchmark indexes rose in 4 of the 11 western European markets open today. The U.K.’s FTSE 100 and France’s CAC 40 rose 0.1 percent. Germany’s DAX dropped 0.6 percent.

Markets in Switzerland, Austria, Norway, Denmark, Luxembourg, Iceland and Greece are closed for public holidays.

Europe Divided

The Stoxx 600 has erased all the gains that followed the European Union’s unveiling of a 750 billion-euro ($927 billion) loan package on May 10 aimed at stopping the euro region’s weakest members from defaulting. Since the year’s high on April 15, the gauge has dropped 13 percent amid concern that Europe is divided on how best to deal with spiraling debt levels.

“Sentiment is extremely fragile,” JPMorgan’s London-based strategist Mislav Matejka wrote in a report to clients today. “The volatility continues, but we advise adding to stocks on dips. The markets are of course a lead indicator, but they can sometimes overact as well.”

Rio Tinto climbed 2.6 percent to 2,984.5 pence as zinc, nickel and tin rose on the London Metal Exchange. Xstrata Plc, the world’s fourth-largest copper producer, increased 1.5 percent to 964 pence. Anglo American Plc gained 1.6 percent to 2,519.5 pence.

Barratt Upgrade

Barratt Developments increased 2.1 percent to 109.6 pence after JPMorgan upgraded the homebuilder to “overweight” from “underweight.” Rival Taylor Wimpey Plc climbed 3.5 percent to 33.9 pence as the bank reiterated its “overweight” recommendation. Analysts cited “deep value” for both companies which are “strongly geared” to a housing recovery.

BBVA, Spain’s second-largest bank, retreated 2.3 percent to 8.53 euros after the Bank of Spain put CajaSur, a savings bank in the city of Cordoba crippled by defaults on property loans, under a provisional administrator.

Banco Santander SA lost 1.5 percent to 8.48 euros and Banco Popular Espanol SA, Spain’s third-largest bank, lost 2.7 percent to 4.32 euros.

BP Plc, Europe’s second-largest oil company by market value, dropped 3.1 percent to 490.95 pence, leading a retreat in energy shares. The company said its costs to date from an oil leak in the Gulf of Mexico have reached about $760 million, or $22 million a day. That compares with an initial estimate of $6 million a day last month.

Europe’s credit crisis is punishing Spanish and U.K. companies as if they were Greek, luring investors with valuations that suggest risk is the same everywhere in the region.

The price-earnings ratio of London-based HSBC Holdings Plc, Europe’s biggest bank by market value, slipped below Greece’s EFG Eurobank Ergasias SA last week, according to data compiled by Bloomberg. Spain’s Banco Santander SA trades at 8 times projected profit, the lowest relative to Athens-based Piraeus Bank SA in more than three years.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net .

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