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European Shares Choppy ahead of ECB Decision, Credit Suisse Jumps

  • Credit Suisse secures $54 bln lifeline, shares up 19.8%
  • ECB rate hike plans clouded by banking turmoil
  • STOXX 600 flat, banks add 1.3%

March 16 (Reuters) - European shares struggled for direction on Thursday, with caution prevailing ahead of a closely watched European Central Bank rate decision, while beleaguered lender Credit Suisse jumped after a lifeline from the Swiss National Bank allayed some fears of a global banking crisis.

The STOXX 600 was flat by 0925 GMT after rising as much as 1.6% in early trading.

The index fell nearly 3.8% so far this week as the collapse of U.S. lender Silicon Valley Bank last week raised concerns about stress in the global banking sector and sent bank shares into a tailspin.

The banks sector index added 1.3%, after logging its steepest one-day drop in more than a year in the previous session.

Credit Suisse, which is at the centre of Europe's banking rout, recovered 19.8% after saying it would borrow up to $54 billion from the Swiss central bank to shore up liquidity and investor confidence.

Shares of the Zurich-based lender had tumbled 24% to a record low on Wednesday.

"There appears to be a lifeline for the beleaguered lender, which should prevent another Lehman moment, much to the relief of markets and Credit Suisse's investors," said Victoria Scholar, head of investment at interactive investor.

"The bank which has been around since 1856 has been instrumental in supporting growth of the Swiss economy with the SNB clearly judging that the bank's systemic important overrides any moral hazard argument."

Lender-heavy indexes of Spain and Italy rose 0.8% and 0.6%, respectively.

The cost of insuring exposure to European junk corporate bonds also fell, in a sign of investor relief.

All eyes were on the ECB meeting later in the day for the first big test of how policymakers will respond to growing fears about banks.

"On one hand, we have the rising inflationary pressures in the euro zone, that ECB needs to tame by higher interest rate hikes and on the other hand, we now have this stress on banks due to the rising yields," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

"The ECB will have to find the midway to both ease the stress on banks and to continue fighting inflation, and a 25 basis point hike could be that midway."

Money markets have pulled back some bets of a larger rate increase by the ECB at 1315 GMT amid turmoil in financial markets, with traders now seeing 49% likelihood of a 25 basis-point hike.

Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Subhranshu Sahu and Krishna Chandra Eluri

Source: Reuters

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