LIVE MARKETS-Closing snapshot: STOXX powered by banks

* European stocks rise 0.6%, banks outperform (+1.9%) * Fed's hawkish cut, value rotation boosts banks * Fed helps calm market anxious over repo rate spikes * Bank of England keeps rates steady, FTSE up 0.6% * Next down 5.7% on weak Q3 outlook * European steel stocks fall on US Steel warning Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Thyagaraju Adinarayan. Reach him on Messenger to share your thoughts on market moves: rm://thyagaraju.adinarayan.thomsonreuters.com@reuters.net CLOSING SNAPSHOT: STOXX POWERED BY BANKS (1626 GMT) A hawkish rate cut at the Fed made the day for banks, sending their sectoral index rising 1.9% to score its first positive day in four. Their strength and gains across most other sectors more than offset weakness in some defensive and bond-like stocks, sending the pan-European STOXX 600 benchmark index up 0.6% to its highest level in almost a week. Here is your closing snapshot: (Danilo Masoni) ***** AFTER FED, TIME TO TAKE PROFITS? (1443 GMT) After the staggering inflows into government bonds this year, at least one wealth manager is preparing to reduce their exposure to the safe haven and their reasoning is a little contrarian. After increasing exposure to U.S. Treasuries in July last year, Kestrel Investment Management reckons they are now near their price peak and are preparing to walk that back a bit over the next six to eight weeks. Rather than profit-taking which has materialised in bond markets recently, the strategy is based on the belief that inflation will rise and the U.S. economy is improving, says Dan Matthews, portfolio manager at Kestrel. "Bonds have gone up a lot. We believe inflation will normalise and we're also saying that the economy is getting better and exports are getting better," he says. This despite the lingering worries about the U.S-China trade war and broader slowdown in other economies (Germany in particular). Still, check out the chart below, which shows a big resurgence in the Citigroup economic surprise index and helps explain how the world's No. 1 economy is providing some fresh optimism in the market. Looks like the Fed was right overnight to signal rate moves would be data dependent.... (Josephine Mason) ***** BANKS ARE BACK (1224 GMT) Euro-zone banks are storming higher today (seven out of the top STOXX 600 gainers are Irish, Spanish, Italian, French and German banks) as the rotation into cheap, beaten-down stocks resumes. The main driver has been ebbing worries a bank liquidity squeeze after the repo rate spiked, forcing the Fed to make an emergency injection of more than $125 billion on Tuesday and Wednesday. Concerns about U.S. overnight funding markets had put a temporary stop to the inflows into banks this week even as underlying drivers (inflation expectations and Bund yields) continued to move in the right direction, says Russell Quelch, financials analyst at Redburn. But the Fed's commitment overnight to keeping in the market to conduct temporary operations as long as necessary has succeeded in calming markets. "This is a smart move from the Fed as it is calming markets while not permanently expanding the balance sheet," says Quelch. There's also some relief that the Fed indicated it may not cut rates further overnight. Hopes that governments will splash the cash and unleash fresh fiscal stimulus to shore up the bloc's economy have also re-emerged after ECB chief Mario Draghi's explicit statements last week. Some reckon that by dropping time constraints on QE the central bank will rely on this rather than interest rates to ease policy. The market's now pricing in a 10 bps cut by April, compared with 20 bps previously. "We think fiscal stimulus will now drive the debate in Europe and continue to support value sectors (including banks)," says Quelch. His preferred names are UniCredit, ING , ABN Amro and Credit Agricole. (Josephine Mason) ***** STOCKS "WILL CONTINUE TO LURCH UP AND DOWN ON A BIG DIPPER" (1142 GMT) After a roller-coaster summer and with central banks having delivered their fair dose of extra stimulus for the global economy, can investors expect equity markets to calm down? Jürgen Michels, Chief Economist and Head of Research at Bayern LB in Munich, believes things won't get boring and anticipates a bumpy ride in an environment he says will be marked by feeble economic activity and a hyperactive ECB. "Equity markets will continue to lurch up and down on a big dipper," he says. "The weak global economic activity should weigh on equity valuations and feed through to faltering corporate earnings. However, the more accommodative stance of central banks, the greater relative attractiveness of equities.. and the fact that investors are predominantly underweight on shares ought to prevent a sharp valuation contraction," he adds. According to Michels, the volatile sideways trend should continue for six months before taking a turn to the upside. "In H2 2020, a stabilisation of the cyclical outlook and stronger speculation about an equity purchase programme from the ECB will probably propel prices higher," he argues. As a result Bayern LB has lifted its 2020 target for the DAX to 13,000 points from 12,000. Currently the German benchmark is trading at 12,400. (Danilo Masoni) ***** NEED FOR M&A: EURO-ZONE HAS 5 TIMES MORE BANKS THAN CHINA (0922 GMT) Euro-zone has more banks than the world's most populous country China, but still there are no signs of consolidation in the sector due to complications in cross border M&A in Europe. Astounding numbers from JPMorgan: Euro-zone has 4,500 banks, one per 75,000 people, while China has 4,100 banks, one per 341,000 people. That's 5 times more banks than China on population basis. There's been a lot of buzz around M&As, but no real action: Deutsche Bank-Commerzbank, UniCredit-Commerzbank and ING-Commerzbank were the latest pairs to have failed to wed each other. While cross border M&A seems less likely, JPMorgan says there is a possibility amongst small cap Italian banks, given the degree of fragmentation – "but political uncertainty means that this is unlikely to materialise in the near-term". Drawing comparison to Japan again, JPM says the absence of large cross-border mergers in Europe post-crisis closely resembles Japan – where consolidation amongst City Banks took 10+ years to materialize. But, will consolidation solve the problems faced by banks? Not quite. "Combining two banks with some difficult problems doesn't solve the problems, you just have doubled the problems," State Street multi-asset strategists say. Negative interest rates are a common problem for all of them in the euro area. There's been a dearth of M&A deals in the sector in the last 12 years: Number of credit institutions by countries: (Thyagaraju Adinarayan) ***** OPENING SNAPSHOT: STEEL SLIPS, BANKS RISE; NEXT BRUISED (0731 GMT) Slightly higher open for Europe as strong gains in banking stocks offset weakness in steel makers. Mining sector is the worst performer across Europe as falling iron ore prices and a warning from U.S. Steel on weakening demand dent shares. As expected, European steel stocks ArcelorMittal, Salzgitter, Voestalpine , SSAB, Outokumpu slide 1%-2%, while London miners are down 1%. The gains in banks may be partly due to the continued rotation into underperformers but also some relief about the Fed's cloudy outlook for future rate cuts after cutting borrowing rates as expected overnight. UK's FTSE 100 is lagging the broader market weighed down by a sell-off in mining stocks and Next. Next shares are on track for their worst day in more than a year after the British clothing retailer said the first few weeks of the Autumn season have been disappointing. Another bad day for airlines as Morgan Stanley restarts coverage on European airlines with a cautious view: "underweight" on Lufthansa and Ryanair, "overweight" on British Airways owner IAG. (Thyagaraju Adinarayan) ***** ON OUR RADAR: STEEL, UK RETAIL, SWISS WATCHES (0652 GMT) Stock futures are pointing to a weak open for Europe as the Fed's commentary overnight signalled further cuts are unlikely after two back-to-back quarter point cuts. Investors are now looking forward to the Bank of England's statement later today to see if some easing is on the horizon amid the ongoing Brexit saga. FTSE 100 stock futures (-0.3%) are under pressure ahead of BoE at 1100 GMT and as mining stocks could take a hit on falling iron ore prices. European steel and industrial stocks ArcelorMittal, Salzgitter, Voestalpine, SSAB, Outokumpu and ThyssenKrupp in focus after US Steel's warning about weakening demand overnight, which sent the company's shares down 7%. U.S. Steel said market conditions in Europe have continued to deteriorate with significant margin compression. No end to Brexit woes for UK corporates? Over-50s tourism and insurance firm Saga reported a 52% drop in H1 profits and said the uncertainty around the timing of Britain's exit from the EU is hurting consumer willingness to commit to 2020/21 holidays. Next shares are expected to slide 1%-2% after traders say the British clothing chain said the few weeks of the Autumn season have been disappointing due to the warmer weather. Spectris shares are seen rising 2% after its plan to sell unit BTG. Swiss watchmakers Swatch and Richemont are seen up 1% on strong Swiss watch export data. German construction and machinery manufacturing company Bauer is seen falling 10% after it warns of FY profits citing project delays, according to traders. Bauer's warning is the latest evidence of a slowdown in Europe No.1 economy. Other key headlines: Clariant fined by Swiss exchange for breaking publication rules Airbus revises up jet demand, warns of 'lose-lose' tariff war GSK's over-the-counter nicotine oral spray gets FDA panel backing Deutsche Bank has discussed adding assets to bad bank if sales go well-sources UK's Next profit up 2.7% on strong online growth Swiss raid stomach ache drug ingredient makers in competition probe BUZZ-United States Steel falls after gloomy outlook Brazil's Oi in talks to sell mobile unit to Telecom Italia, Telefonica -sources Britain's Saga posts first-half profit slump German prosecutors probe Airbus for potential misuse of client documents Diageo sets full-year organic sales forecast, says not immune to trade changes (Thyagaraju Adinarayan) ***** FED'S DELIVERED, NOW FOCUS SHIFTS TO BOE (0537 GMT) European stocks are expected to open flat to slightly lower after the Fed cut interest rates by a quarter point and signalled further cuts are unlikely as the labour market remains strong. With Fed out of the way, focus shifts to Bank of England which is expected to come out with a monetary policy statement at 1100 GMT. "Bank of England rate decision is likely to be a more mundane affair given the proximity of the Brexit deadline at the end of October. No changes are expected to monetary policy with the main focus expected to be on how it sees the UK economy evolving over the next few months," Michael Hewson at CMC Markets UK says. Financial spreadbetters IG expect London's FTSE to open 14 points lower at 7,300, Frankfurt's DAX to open 8 points lower at 12,382, and Paris' CAC to open flat at 5,621. While the U.S. stock markets hardly reacted to Fed's action, the U.S. President expressed his disappointment on Twitter: (Thyagaraju Adinarayan) ***** (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)