European stocks rally after Brexit, banking rules deals

By Georgina Prodhan

LONDON (Reuters) - European stocks rallied to a week's high on Friday as Britain and the European Union announced a breakthrough in Brexit negotiations and new global banking regulations appeared kinder to European banks than had been expected.

The European Commission said enough progress had been made after it worked through the night with the United Kingdom to end an impasse over the status of the Irish border, which had scuppered an earlier attempt to clinch a deal on Monday.

Financials lifted the pan-European Stoxx 600 0.8 percent. The euro zone banking index rose 2.3 percent, its best gains in five months.

Policymakers announced a compromise late on Thursday on rules forcing banks to hold more capital and cash, capping a decade of efforts to make banks more resilient and avoid a repeat of the 2008 financial crash.

"This appears to be a far better outcome than we and the market had feared," wrote Citi analyst Simon Nellis, keeping his "overweight" rating on European banks.

"This is a big positive for all European banks, which should now be able to quantify excess capital and M&A budgets in due course, with Benelux, French and Nordic banks best placed to benefit from this announcement."

Among the top gainers were ABN Amro, up 5.3 percent; Danske Bank, up 4.6 percent, Unicredit up 4.1 percent and Credit Agricole rising 3.9 percent.

Germany's DAX hit a month's high in intraday trading before closing up 0.8 percent. The financials-heavy Italian index surged 1.4 percent higher, its best day in six weeks.

A breakthrough in Brexit divorce negotiations also drove markets' end-week rally. Britain and the European Union struck a divorce deal paving the way for arduous talks on future trade ties, boosting hopes of an orderly Brexit.

The FTSE 100 outperformed European shares as the pound, counter-intuitively, fell with investors cashing in their gains on the currency.

Tech stocks, which had a downbeat start to the week, were notable gainers with chipmaker ams surging 8.4 percent higher, having sunk 19 percent in just two weeks.

The most dramatic European share moves came again from accounting scandal-hit furniture retailer Steinhoff, which ended down 20.7 percent after Moody's downgraded it to junk.

It had had a rollercoaster day, opening 41 percent lower before bouncing back into positive territory and finally surrendering gains once again.

"The shares are a pure gamble now," said one Frankfurt-based trader. "Nobody knows what's going on at Steinhoff at the moment."

(Reporting by Georgina Prodhan, editing by Julien Ponthus, Larry King, Richard Balmforth)