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European shares rise as Italian bank gain ground


Big News Network.com
7 Dec 2016

ROME, Italy - Italy is planning to swell its share in the ailing Monte dei Paschi di Siena bank. 

The government already owns four percent in the bank, making it the largest single shareholder. It wants to increase that stake to 40 percent, which would give it controlling power over shareholder meetings.

Monte dei Paschi is Italy's third largest bank, and the world's oldest. 

It's also Europe's worst, according to a stress test of eurozone banks this summer.

A private rescue was earlier planned, but following Renzi's decisive defeat in the referendum, the investors backed out.

Under the planned rescue scheme, Italy wants to buy 2 billion euros of junior bonds held by some 40,000 ordinary Italians, to make sure they don't suffer losses in the saving operation.

Another 1 billion euros would come from a bond swap with institutional investors. 

The bank hopes these moves will help to persuade some private investors to fill the 2 billion euros gap.

There are fears the bank could drag down other banks and even plunge the eurozone into a crisis if it fails to find a solution to its problems.

On Tuesday, European shares rose for a second day with banking stocks surging to an 11-month high as investors dipped back into a beaten-down sector.

The rally was led by Italian banks, which climbed nine percent, their biggest one-day since July, on short covering before a European Central Bank meeting this week and after Renzi said he would step down following the referendum's defeat.

Monte dei Paschi, in particular, rose 1.2 percent on expectations of a state bailout.

There are reports that the Italian government could also be seeking a 15 billion euro (13 billion pounds, $16 billion) loan from European authorities in a bid to save the country's banking sector. 

However, the Italian Treasury and the European Stability Mechanism (ESM) press office denied any such plans were being drawn up.

On Tuesday, the euro fetched $1.0717, slipping from Monday's half-month high of $1.0797 but still well above 20 month lows of $1.0505 touched in the wake of Italy's referendum.

The euro also got some support as the dollar's rally since the U.S. presidential election has lost steam.

Meanwhile, on Wednesday, Asian shares moved up as investors covered short positions. 

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.25 percent while Japan's Nikkei gained 0.4 percent.

Australian shares rose 0.7 percent despite data showing the economy contracted in the third quarter.

"After the Brexit and the U.S. election, I think financial markets have learned that even if they see a result that is not necessarily in line with their values, markets will quickly recover as its economic impact is either negligible or will take time to appear," said Tatsushi Maeno, senior strategist at Okasan Asset Management.

Oil prices extended losses after having eased on Tuesday for the first time since OPEC agreed on November 30 to cut output.

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