(MENAFN- The Peninsula) Europe's main stock markets closed up yesterday, lifted by the European Central Bank's announcement that it would begin buying asset-backed securities in a multi-pronged action to get lending flowing again.
London's benchmark FTSE 100 index ended the day 0.15 percent higher at 6,463.55 points, after a day of choppy trading as investors fretted initially over the health of the eurozone banking industry. In Paris, the CAC rose 0.74 percent to 4.141.24 points and Frankfurt's Dax was up 0.35 percent at 9,114.84 points.
The Federal Reserve's withdrawal of its vast bond-buying scheme known as quantitative easing, had earlier also hit sentiment across global markets. Stocks in the eurozone's periphery of Athens, Lisbon and Madrid also slumped initially on renewed doubts over recent stress tests on the eurozone bank sector. But losses were later capped by the ECB's asset purchase announcement. The Lisbon market closed down 1.47 percent while Athens lost 2.8 percent. Madrid meanwhile finished with a slight gain of 0.16 percent.
The euro was trading at $1.2624. The ECB gave most eurozone banks a clean bill of health on Sunday, but said 25 out of a total 130 banks had a combined shortfall of 25bn euros ($31bn) at the end of 2013. "I think (there are) still some concerns over ECB stress tests - and that ECB might be under-estimating capital required," VTB Capital economist Neil MacKinnon said.
After a two-day meeting, the US central bank's Federal Open Market Committee (FOMC) said on Wednesday it would bring an end to six years of monetary easing as the world's biggest economy gets back on track. The Fed added it would keep near-zero interest rates for "a considerable time" after the end of the QE programme, sticking to its timetable of an increase well into 2015.
However, while the decision was widely expected, optimistic comments on the jobs market were considered by analysts to be more hawkish than in the past, fuelling speculation of a possible earlier-than-expected rate hike.
While that hurt sentiments earlier in the day, markets recovered as the ECB said it would begin its purchases of asset-backed securities or ABS in November. Asset-backed securities (ABS) are bundles of individual loans such as mortgages, car credit and credit-card debt which are sold on to investors, allowing banks to share the risk of default and freeing up funds to offer more lending.
The ECB believes that the market for such securities - an important source of financing for banks to keep lending to small and medium-sized enterprises - has effectively dried up since the financial crisis.
The bank hopes that by buying them on a large scale, it can help revive the market and free up some of the credit channels which have seized up during the long years of crisis. There has also been speculation that the ECB could embark on the purchase of corporate bonds, and a large-scale sovereign bond purchase scheme known as quantitative easing is also believed to be under consideration.
In foreign exchange deals, the euro later stood at $1.2624, down from $1.2634 in New York late on Wednesday. The euro fell to 78.72 British pence from 78.90 pence. The British pound gained to $1.6037 from $1.6011 on Wednesday
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