European markets rise on cue from American moves

EUROPEAN stocks have risen for a second week, boosted by expectations the Federal Reserve will lower interest rates and after the United States government moved to avert further defaults in the housing industry.

Royal Bank of Scotland Plc led gains in banks after the lender wrote down 1.5 billion pounds (US$3 billion) of credit assets, in line with analysts' estimates. Xstrata Plc paced mining stocks higher amid takeover speculation in the industry.

The Dow Jones Stoxx 600 Index added 0.7 percent to 372.88 last week. The measure rose to its highest in a month as investors speculated the Fed will lower its benchmark lending rate this week and after the Bank of England cut interest rates for the first time in two years, Bloomberg News said.

"Investors have been cheered in recent days by signs that the authorities recognize the downside risks to their economies and are acting decisively to address them," said Richard Scott, who helps oversee about US$2.4 billion at Iimia MitonOptimal in Exeter, England. "News from RBS also boosted sentiment."

President George W. Bush and Treasury Secretary Henry Paulson announced a deal with lenders last Thursday that will fix rates on some loans for five years, easing concern that defaults will hurt the economy.

The Fed will release its rate decision tomorrow. The odds of a quarter percentage-point cut are 74 percent, Fed funds futures contracts indicate. Futures are pricing in a 26-percent chance of a half-point cut to four percent, down from 38 percent two weeks ago.

National benchmarks gained in 14 of 18 western European markets last week. Germany's DAX Index advanced 1.6 percent. France's CAC 40 added 0.8 percent while the UK's FTSE 100 gained 1.9 percent. The Stoxx 50 rose 0.9 percent, and the Euro Stoxx 50, a measure for the euro region, jumped 1.2 percent.

Royal Bank of Scotland, the UK's second-biggest bank, climbed 5.3 percent. The lender reported 1.5 billion pounds of writedowns from slumping credit market and said earnings will exceed analysts' estimates this year.

HSBC Holdings Plc, Europe's biggest bank by market value, gained 3.4 percent. Credit Suisse Group, Switzerland's second-biggest bank, climbed 2.4 percent.

Xstrata, the world's fourth-largest copper producer, jumped 6.9 percent, boosted by speculation Anglo American Plc may make an offer.