The European stock markets have surged after the Federal Reserve increased interest rates for the first time since 2006.
The main share indexes in France, the UK and Germany’s were all up by between 1% and 3% in morning trade.
The US central bank increased the range for its benchmark interest rate to between 0.25% and 0.5%, from the previous range of 0%-0.25%.
The Fed said the rise was part of a “gradual” process to get rates back to normal after years of being near zero.
“Considerable improvement” in the jobs market spurred the Fed into action.
London’s FTSE 100 rose 1.4% to 6,146.68, while Frankfurt’s Dax jumped more than 3% and the Cac 40 in Paris was 2.5% higher.
Photo Reuters
The European stock markets were following the lead given by markets in the US and Asia.
On Wall Street, the Dow Jones closed up 224.18 points, or 1.3%, at 17,749.09, while in Japan, the benchmark Nikkei 225 closed up 1.6% at 19,353.56.
After the Fed’s decision, the dollar rose against larger major currencies. Higher rates make the US a more attractive market for deposits, meaning demand for the dollar is likely to rise.
However, sterling recovered ground lost against the dollar and was 0.3% higher against the euro to €1.3783 after positive retail sales numbers for November.
At one point £1 bought almost $1.50.
British government-issued bonds, or gilts, rose in price following the Fed decision, meaning lower yields, or income.
Benchmark ten-year gilt yields fell 0.056 percentage points to 1.89%. While the specter of higher rates is often bad for existing debt prices, analysts said investors were pleased future Fed rate rises would be “gradual” in nature.
European stocks have traded lower on September 18 after the Federal Reserve’s decision not to change interest rates, as concerns about the health of the global economy were renewed.
The Federal Reserve made it clear that worries about the global economy had influenced its decision to keep rates on hold.
“The outlook abroad appears to have become less certain,” said Fed chair Janet Yellen, at a news conference.
At lunchtime, the UK’s FTSE 100 was down 66.66 points, or 1%, at 6,120.33.
Bigger falls were seen elsewhere in Europe, with Germany’s Dax index down 2.5% and France’s Cac 40 dropping 2.6%.
Markets could now face a prolonged period of uncertainty as to the direction of US interest rates.
In London, banking stocks saw some of the biggest falls, with Royal Bank of Scotland down 2.6% and Barclays dropping 2.1%.
On the currency markets, the pound rose 0.35% against the dollar to $1.5646, and was up 0.4% against the euro at €1.3684.
Following the Fed’s decision the dollar fell sharply against the yen, dropping below the 120 yen mark. The move hit shares in Japan – particularly among exporting companies – and the country’s Nikkei index closed down 2%.
In a bid to ease investor’s concerns, Portugal’s central bank has stated that Banco Espirito Santo does not need extra funds.
Banco Espirito Santo (BES), Portugal’s largest bank, itself has said it has sufficient finances to deal with its parent company’s debt problems.
Worries about the financial strength of the bank’s parent company hit global stock markets on Thursday.
Portugal’s central bank said investors had “no reason to doubt” the security of funds, and savers had “no need to be worried”.
On Thursday, shares in both BES and Espirito Santo Financial Group – which holds a 25% stake in BES – fell sharply on worries about the financial health of the Espirito Santo group.
Banco Espirito Santo has said it has sufficient finances to deal with its parent company’s debt problems
Lisbon stock market regulators suspended trading in BES shares after they plunged by more than 17%. After the ban was lifted around midday on Friday, the shares gained close to 4% to 0.53 euros.
The overall Portuguese market was more than 2% higher meanwhile, after losing 4% on Thursday.
On Thursday evening, BES said it was “waiting for the release of the restructuring plan of Espírito Santo Group in order to assess the potential losses related to its exposure”.
“BES Executive Committee believes that the potential losses resulting from the exposure to Espírito Santo Group do not compromise the compliance with the regulatory capital requirements.”
Portugal’s PM Pedro Passos Coelho echoed the central bank’s message that BES was not in need of support.
Pedro Passos Coelho said: “There is no reason for the state to intervene in a bank which has solid capital and which has a comfortable margin to deal with any eventuality, even the most adverse.”
The events triggered a fresh outbreak of nerves about European banks, sending stock markets in Europe and the US lower.
There were concerns that BES’ troubles could have a wider impact on Portugal which only two months ago exited the bailout program.
At the height of the financial crisis, Portugal was forced to take a 78 billion euro ($106 billion) bailout from its European partners and the International Monetary Fund (IMF).
Portugal’s government borrowing costs fell to an eight-year low of 3.58% in April this year, but worries surrounding BES and the health of the country’s financial sector pushed these back up towards 4% on Thursday.
US and European stock markets have fallen over concerns about the health of one of Portugal’s biggest banks.
Shares in Banco Espirito Santo were suspended after falling 17% following concerns about accounting irregularities at its parent group.
As a result, the Lisbon stock exchange fell more than 4%, Madrid’s IBEX was down 2.7%, while the Paris CAC 40 and Frankfurt’s DAX were both 1.8% lower.
Wall Street also opened sharply lower, with the Dow Jones falling 150 points.
This took the index well below 17,000, the level breached for the first time earlier this month.
US and European stock markets have fallen over concerns about the health of Portugal’s Banco Espirito Santo
Media reports highlighting concerns about certain financial practices at the Espirito Santo group surfaced at the end of last year.
Portugal’s central bank then ordered an audit into the group’s accounts, which uncovered “serious” accounting irregularities.
The Portuguese government has said that Banco Espirito is isolated from problems at its parent, which is registered in Luxembourg, and that public finances are not at risk.
At the height of the financial crisis, Portugal was forced to take a 78 billion euro ($106 billion) bailout from its European partners and the International Monetary Fund (IMF).
Portugal exited the bailout program last month as confidence in the country’s economy returned.
Government borrowing costs fell to an eight-year low of 3.58% in April this year, but renewed concerns about the health of the country’s financial sector pushed these back up towards 4% on Thursday.
Some commentators suggested the specific concerns about Banco Espirito fed into wider fears about the health of the eurozone economy.
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