Miners lead European shares higher

Shutterstock [http://www.shutterstock.com]

London - European shares gained on Monday, with basic resources stocks leading the market higher after mining and commodities trading firm Glencore announced plans to cut debt and trim its African copper operations.

The pan-European FTSEurofirst 300 index was up 0.5% at 1 399.01 points by 13:30 after rising to a high of 1 409.64 points in early trading. The index closed 2.5% lower on Friday when a mixed jobs report fuelled uncertainty about the timing of a likely US rate hike.

Glencore shares rose 6.6% after the company said it will sell assets, raise $2.5bn in a new share issue to cut its debt by a third to $20bn by the end of next year and suspend dividends.

"Concerns regarding the group's balance sheet have weighed heavily on the share price in recent weeks. Whilst uncertainties regarding prospects for China and its impact on the mining sector remain, Glencore management appear to be taking firm action to try and remove the company from the eye of the storm," Keith Bowman, equity analyst at Hargreaves Lansdown, said.

The company has been under pressure to cut debt as prices for its key products, copper and coal, have sunk to more than six-year lows on concerns about China's economic growth. Even with Monday's bounce, its shares are still down more than 50% this year after hitting record lows last week.

Shares in pure-play copper miners rallied after Glencore said it will suspend production at two of its mines, taking out 400 000 tonnes of copper supply from the market.

Copper producer Antofagasta surged 6.9%, helping the STOXX Europe 600 Basic Resources Index to gain 1.7% and topping the sectoral gainers' list.

"Bargain hunting traders and investors might well be eyeing up some very reasonably priced stocks that have been the victims of recent China-inspired volatility," Augustin Eden, analyst at Accendo Markets, said.

"While the fact remains that commodities are still under immense pressure and those who dig them up are too, blue-chip stocks trading at a discount like Glencore's provide an ideal vehicle for riding price swings."

Analysts said European equities remained vulnerable to further declines due to lingering concerns about the pace of economic growth in China, the world's top metals consumer.

China's stock market reopened after closing over Thursday and Friday as Beijing celebrated 70 years since the end of World War Two. Shanghai shares initially rose as much as 1.8% following remarks over the weekend by regulators aimed at calming the market, but the index was last down 1.6%.

China's policymakers and regulators tried to soothe jittery markets, promising deeper financial market reforms and stressing the economy was showing signs of stabilising.

Trading volumes in Europe were likely to be thin as US markets were closed on Monday for a public holiday. By midday, volumes on the FTSEurofirst 300 index were just 28% of its 90-day daily average.

Across Europe, Britain's FTSE 100, France'c CAC and Italy's FTSE MIB rose 0.4% to 0.5%. Germany's DAX was up 0.6%, also helped by data showing German industrial output rose in July at its fastest pace this year.

Brent Crude
All Share
Top 40
Financial 15
Industrial 25
Resource 10
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
I'm not really directly affected
18% - 1609 votes
I am taking a hit, but should be able to recover in the next year
23% - 2116 votes
My finances have been devastated
35% - 3173 votes
It's still too early to know what the full effect will be
25% - 2296 votes