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Initial relief on Greek deal boosts European shares

Published 07/22/2011, 01:09 PM
Updated 07/22/2011, 01:12 PM
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* FTSEurofirst 300 ends up 0.5 pct

* Integrated oils among top gainers

* Banks buck broad-based rise; Italian banks hit

By Simon Jessop

LONDON, July 22 (Reuters) - European shares ended the day and week higher on Friday, led by oil stocks, as a second bailout for debt-laden Greece gave an initial boost to investors' confidence.

But while Greek banks rose strongly, Italian, Spanish and some core European lenders gave back some of the previous session's hefty gains on concerns the deal would not be enough to prevent the debt crisis spreading in the longer term.

"For the majority, it's a short-term relief rally," Valentijn van Nieuwenhuijzen, head of strategy at ING Investment Management, said, adding he was now "neutralish" on financials, on reduced downside risk, but the story was likely not over.

Integrated oils were among the top gainers, led by Total , up 1.4 percent, helping the FTSEurofirst 300 end the day up 0.5 percent at 1,108.90 points and the week up 2 percent. It remains down 1.1 percent year-to-date.

The announcement of a wide-ranging deal on Thursday to bail out Greece for a second time saw private bondholders take a smaller-than-expected haircut, the region's bailout remit expanded and interest rates on its loans cut.

Fitch Ratings subsequently moved first on Friday to declare Greece in "restricted default", while economists, including those at RBS, doubted the deal would be enough to end the crisis and said the bailout fund needed to be bigger.

"The crisis will in our view linger with markets likely to test the EFSF (European Financial Stability Fund) firepower," they said in a note.

In the medium term, van Nieuwenhuijzen said, the region needed a "more fundamental solution which addresses the structure of the euro zone", so "we remain underweight Europe and as a result of that have a cautious tilt towards the European banking sector".

Greek banking stocks proved the standout gainers, with National Bank of Greece the top gainer, up 9.4 percent, while Spanish lender Bankinter rose 6 percent on forecast-beating earnings.

Elsewhere in the sector, however, a petering out in the short-covering rally begun earlier in the week combined with fund manager reluctance to go long the sector heading into the weekend hit some French lenders, a Paris-based trader said.

Profit-taking on Italian lenders, as Rome's sovereign spread to Bunds widened slightly, added to the pressure and left UniCredit and Intesa Sanpaolo as the biggest fallers, down 4.6 percent and 2.9 percent, respectively.

"The euphoria of yesterday has subsided a bit. People are questioning whether it's the all-encompassing solution," Michael Symonds, analyst at Daiwa Capital Markets, said.

"Does it solve the problem for Spain and Italy? That's where the questions lie and that's why you've seen weakness there," he added, citing a slight widening in Spanish and Italian credit default swaps. (Additional reporting by Alexandre Boksenbaum-Granier in Paris; Editing by Erica Billingham) ============================================================ For rolling updates on what is moving European shares please click on ============================================================ For pan-Europeanmarket data and news, click on codes in brackets: European Equities speed guide................... FTSEurofirst 300 index.............................. STOXX Europe index.................................. Top 10 STOXX sectors........................... Top 10 EUROSTOXX sectors...................... Top 10 Eurofirst 300 sectors................... Top 25 European pct gainers....................... Top 25 European pct losers........................

Main stock markets: Dow Jones............... Wall Street report ..... Nikkei 225............. Tokyo report............ FTSE 100............... London report........... Xetra DAX............. CAC-40............... World Indices.....................................<0#.INDEX> Reuters survey of world bourse outlook......... Western European IPO diary......................... European Asset Allocation........................ Reuters News at a Glance: Equities................. Main currency report:.................................

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