Europe close: Stocks finish higher despite Greece and Iran news

LONDON (ShareCast) - -Shares of Unicredit (MDD: UCG.MDD - news) rise 10% in Milan, Commerzbank (Other OTC: CRZBF.PK - news) up 12%. -Germany sells €2.54bn in 12 month bills at 0.07% rate. -El Erian (PIMCO) says on CNBC that he thinks Greece will reach a PSI (Euronext: ^PSI20 - news) agreement. -Lagarde (IMF (Berlin: MXG1.BE - news) ) supports an increase in the size of Euro area rescue funds, German authorities differ. FTSE-100: 0.94% Dax (Xetra: ^GDAXI - news) -30: 0.50% Mibtel-30: 1.76% Ibex 35 (Madrid: IBEX.MC - news) : 0.67% Cac (Frankfurt: 924169 - news) -40: 0.51% The main European equity benchmarks have closed comfortably higher despite conflicting reports regarding the likelihood, or not, that an agreement will be reached between Greece and private sector creditors on the degree of involvement that will be required of the latter. Nonetheless, PIMCO'S El-Erian has been cited on CNBC as indicating that an agreement is likely. The EU's Economics commissioner, Olli Rehn, for his part, has today also shown in confidence in Greece's ability to reach an accord. That ahead of the result of this evening's meeting of Eurozone finance ministers and a French debt auction. No less important, the tense situation in the Persian Gulf, through which 20% of the world's oil supplies transit every day. Thus, investors awoke this morning to news that British, French and US warships had entered the Strait of Hormuz in a show of defiance to Iranian threats. In response to the above events analysts at Barclays Capital have today written that, "Most of this decision is largely in the price already, with the decision to phase in pressurising prices last week, as this allows for countries to build some inventories before the ban comes into effect. (...) if inventories are not as tight as they were in Q3, the impact on prices will be somewhat muted." Amongst the upside risks to be watched for according to them however is the political instability in Iraq and Sudan, as well as the possibility of higher than expected demand from China. Acting as a backdrop, according to Der Spiegel Italy's Prime Minister, Mario Monti, has told Berlin that the new European rescue fund, the so-called European Stability Mechanism (ESM), ought to be increased in size to €1tn (£828bn) to restore investor confidence in southern European debt. In parallel, Italian truckers and taxi drivers striked today in opposition to fuel tax rises and economic reforms. German officials have today indicated that they do not yet see any need for an increase in the size of the rescue fund. Of interest as well, an article by ex-IMF chief economist Simon Johnson, in Bloomberg, in which he suggests that a 'hair-cut' on Italian debt will still be necessary. COMPANIES Banking stocks were in focus after a report in the Financial Times that France and Germany will call today for a relaxation of global bank capital rules to prevent lending to the real economy from being choked off. Germany's Finance Minister however later denied having any intention of cutting Basel III capital rules for banks. Also of great interest, a report in yesterday's FT.com regarding US funds' renewed appetite for European bank paper. Outokumpu Oyj (Dusseldorf: 472618.DU - news) jumped 18% as Finland's biggest stainless-steel maker held talks that may lead to a merger with a unit of ThyssenKrupp (Xetra: 750000 - news) . From a sector stand-point the best performers now are: banks (2.09%), insurance (1.60%) and oil (0.92%). MACROECONOMY The Eurozone's consumer confidence index for the month of January has come in at -21 (Consensus: 21.4). INSEE's French business confidence index for the month of January fell to 91 from 94 the month before (Consensus: 95). Spanish GDP contracted at a 0.3% on the quarter pace in quarter four of 2011. OTHER MARKETS The Euro/dollar is trading clearly higher, rising by 0.64% to the 1.3010 dollar level. Brent crude futures are up by 1.16% to $111.13 per barrel mark. AB