European shares rise, led by banks on health check relief
* FTSEurofirst 300 up 0.7 pct, Euro STOXX banking index up 1.1 pct * Millennium bcp up 7 pct, says no need for fresh capital * Monte Paschi, Carige plunge after failing ECB finance test By Francesco Canepa and Sudip Kar-Gupta LONDON, Oct 27 (Reuters) - Euro zone banks led European shares higher on Monday after the results of sector-wide financial health checks painted a brighter picture than many investors had expected. The Euro STOXX banking index rose 1.1 percent after Sunday's European Central Bank review concluded that capital holes identified at the end of last year had since then chiefly been plugged, leaving only a relatively 10 billion euros to be raised. "One good sign was that a big part of the required capital was already raised," said Francois Savary, chief investment officer at Swiss bank Reyl. "All in all, a positive development." Portugal's largest listed bank, Millennium bcp, which failed the test, surged as much as 7 percent in early deals after saying it has already taken measures in 2014 and did not need to raise capital or sell assets. The pan-European FTSEurofirst 300 index was up 0.7 percent at 1,321.20 points at 0823 GMT. Weighing on the index, Britain's Lloyds Banking Group also fell, dipping 2 percent after narrowly passing a parallel test by pan-European regulators, calling into question its chances of re-starting dividends. In Italy, banks Monte dei Paschi di Siena and Carige fell 15 percent and 17 percent respectively after reporting capital shortfalls. The country's banking sector was the hardest hit by the ECB test, reporting a total capital shortfall of 2.9 billion euros. "On the negative side from Italy's standpoint is the high proportion of its banks that are short of capital as a function of the overall picture," said Emanuel Arbib, head of London-based Integrated Asset Management. "However, Italian banks never really got state aid and that MPS and Carige needed fresh equity was pretty well known." The stress test were expected to restore confidence in the banking sector and give healthy banks more room for lending, but investors remain concerned about the euro zone's stagnant credit market and low inflation rate. "Overall the market must now move on to the bigger problems of credit demand and the lingering prospect of deflation - which will take more determined efforts from governments to fix," analysts at Societe Generale wrote in a note. The ECB publishes lending and money supply data at 0900 GMT. Europe bourses in 2014: link.reuters.com/pap87v Asset performance in 2014: link.reuters.com/gap87v Today's European research round-up (Reporting By Francesco Canepa, editing by John Stonestreet)
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