European shares pare losses as BoE seeks to stabilise markets

By Devik Jain and Dhara Ranasinghe

(Reuters) -European shares rallied from session lows on Wednesday led by UK’s blue-chip index after the Bank of England said it would purchase bonds to stabilise the market shaken by British government’s mini-budget.

The continent-wide STOXX 600 index was down 0.7% by 1100 GMT, after falling nearly 2% earlier in the session as an intensifying energy crisis in the region and the relentless surge in global bond yields fuelled worries about a recession.

London’s FTSE 100 index recouped some losses to trade down 0.4%, while UK gilt prices rocketed after the BoE said it would buy as many long-dated government bonds as needed between now and Oct. 14 to stabilise financial markets, adding that it would postpone next week’s start of its gilt sale programme.[.L]

BoE’s decision follows turmoil in UK markets, which have seen British gilt yields soar and sterling fall to record lows, with International Monetary Fund and ratings agency Moody’s criticising Britain’s new economic strategy.

Euro zone borrowing costs fell, reversing an earlier rise to multi-year highs.

“With the announcement just now they have put something of a floor under the market in the short term,” said Charles Diebel, head of fixed income strategy at Mediolanum Asset Management in London.

“However, the pro-cyclical fiscal policy remains and as such the respite may not be long lasting. That said, given the announcement there is a line in the sand with respect to their tolerance for weakness, so something of a “Fed Put” is now in effect … a bank put I guess.”

Meanwhile, geopolitical tensions intensified as Europe investigated what Germany, Denmark and Sweden said were attacks on two Nord Stream pipelines at the centre of an energy standoff.

A media report said the European Union had threatened a “robust and united response” to probable pipeline attacks.

“Damaging the infrastructures clearly pushes the tensions between the West and Russia to a no-turning point, and dashes hopes of seeing an improvement anytime soon – both on the geopolitical and energy fronts,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

Reflecting the grim economic outlook, a survey projected German consumer morale would hit a record low in October as high inflation rates and rocketing energy bills show no signs of easing.

Economy-sensitive sectors such as oil and gas, basic resources, retail and banking down between 1% and 3%.

Shares of fish farmers such as Mowi, Leroy Seafood and SalMar dropped between 15% and 25% after the Norwegian government proposed a resource tax on salmon and trout farming of 40% from the tax year 2023.

(Reporting by Devik Jain in Bengaluru and Dhara Ranasinghe in London; Editing by Subhranshu Sahu, Savio D’Souza and Vinay Dwivedi)