By Adam Haigh
April 9 (Bloomberg) -- European stocks rose for the third straight week as banks rallied after Portugal requested a bailout and the European Central Bank increased interest rates for the first time in almost three years.
Paris-based Rhodia SA rallied 48 percent after Belgian soda ash maker Solvay SA agreed to pay 3.4 billion euros ($4.9 billion) in cash to buy the company. Intesa Sanpaolo SpA, Italy?s second-biggest bank, climbed 7.1 percent as it announced plans to raise as much as 5 billion euros selling new shares to boost capital.
The Stoxx Europe 600 Index advanced 0.6 percent to 281.68 this past week. The gauge has rallied 7.4 percent from this year?s low on March 16 as investors speculated that the economic recovery will withstand Japan?s worst earthquake on record and popular revolts in the Middle East and north Africa. On April 7, ECB President Jean-Claude Trichet said that officials had not decided on a series of increases to interest rates. Earlier that day, the bank lifted the benchmark to 1.25 percent from a record low of 1 percent, where it had been since May 2009.
?Ultra-loose policy settings have clearly led to short- term economic momentum and to expectations that this trend can continue, perhaps for some time,? said Iain Stewart, a fund manager at Newton Investment Management Ltd. in London, which oversees the equivalent of $76.8 billion. Stewart runs the Newton Real Return Fund that has beaten 97 percent of its peers in the past five years, according to Bloomberg data.
The Stoxx 600 traded at about 13.8 percent times its companies? reported earnings, near the cheapest since 2009, according to data compiled by Bloomberg. Fifty-four percent of companies in the gauge that have announced earnings since Jan. 10 topped the average analyst estimate for per-share profit.
Interest-Rate Decision
ECB policy makers will follow this week?s increase with 25 basis-point steps every three months, taking the benchmark rate to 1.5 percent in July and 1.75 percent in October, according to the median of 20 estimates in a Bloomberg News survey. The pattern will continue in 2012 with increases every quarter, taking the key rate to 2.75 percent before the end of next year, the survey showed.
The Euro Stoxx 50 climbed 8 percent in the subsequent month during the previous two interest rate increase cycles, according to London-based Exane BNP Paribas strategist Lars Kreckel. In the past two instances, this rally became 20 percent three months after, data in his April 8 report showed.
Portugal?s Bailout
Portugal became the third member of the euro area to ask the European Union for a bailout. Portugal?s bid for emergency aid opens what European leaders say will be the final chapter in the debt crisis that erupted in Greece last year, spread to Ireland and triggered speculation that the 17-nation euro area will not survive in its current form.
Rhodia rallied 48 percent. Shareholders of the Paris-based company will receive 31.60 euros a share, 50 percent more than Rhodia?s closing price on April 1. Including debt, the deal has an enterprise value of 6.6 billion euros.
There have been 6,589 takeover deals announced globally this year, totaling $658.1 billion, a 30 percent increase from the $506.5 billion in the same period in 2010, according to data compiled by Bloomberg.
Intesa Sanpaolo climbed 7.1 percent. The Italian bank will sell common stock to owners of common and savings shares at a nominal value of 52 euro cents apiece. Italian lenders will boost capital reserves before the implementation of new rules requested by central bankers to avert a repeat of the financial crisis.
Banks posted the biggest gains among all 19 industry groups on the Stoxx 600.
Marks & Spencer
Marks & Spencer Group Plc climbed 6.1 percent as the U.K.?s largest clothing retailer reported sales that beat estimates and forecast improved profitability as Chief Executive Officer Marc Bolland starts to put his stamp on the business.
SGL Carbon SE advanced 13 percent after saying its board and senior management bought 112,346 shares of the company with a total value of 3.9 million euros.
Hochtief AG sank 10 percent, among the biggest decliners on the Stoxx 600 this week. Germany?s largest builder said that it will miss its forecast for this year after its Leighton Holdings Ltd. unit in Australia asked for its shares to be suspended. The Sydney-based company will issue a review of its Feb. 14 earnings projection on April 11.
--With assistance from Alexis Xydias in London. Editors: Will Hadfield, Andrew Rummer
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net
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