(Updates with more share gains)
* Banking shares rise after Santander rescues rival Popular
* Euro hit by report ECB may cut inflation outlook
* All eyes on "Triple Threat Thursday"
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Patrick Graham and Danilo Masoni
LONDON, June 7 A smoothly executed rescue of
Spain's struggling Banco Popular drove European banking stocks
higher on Wednesday in financial markets dominated by caution
ahead of a trio of major events on Thursday.
The absorption of Popular by Spain's biggest bank Santander
for a nominal one euro was the first use of a regime to
deal with failing banks adopted after the 2008 financial crisis
and made barely a ripple in Europe's stock and debt markets.
Indeed, as the morning wore on the success of the process
pushed shares in many major banks higher, supporting a recovery
for Madrid's stock market and fending off this week's
broadly weaker mood.
There was some shock initially at the imposition of steep
losses on junior bondholders and shareholders in Popular, but
senior bondholders were spared. European banking shares rose 1.6
Wall Street was set to open flat to slightly higher.
"The market has taken Banco Popular as positive news because
essentially this is not a bankruptcy but a sort of rescue, even
if its subordinated bondholders have been sharply hit," said
Giuseppe Sersale, a fund manager at Anthilia Capital in Milan.
"The fall in subordinated debt at other Spanish banks today
lasted just around one hour. It's seen positively because it
draws a line under (the problem) involving only risk capital."
The bank rescue does, however, underline the risks to
growth, banking and government debt burdens that are likely to
delay a major switch in language and policy direction by the
European Central Bank at its meeting on Thursday.
The euro fell half a percent against the dollar in morning
trade in Europe, spurred by a Bloomberg report that the ECB
instead of flipping towards tighter policy would cut its
"Maybe tomorrow's ECB meeting sees nothing but platitudes
and disappoints a market that is getting ahead of itself," said
Societe Generale analyst Kit Juckes,
"But (for us) that would be a huge euro buying opportunity,
because ECB normalisation IS coming. And when it does, the euro
simply won't be able to sustain undervalued levels for long."
European blue chip shares had risen by just over half a
percent by 1250 GMT and Madrid's IBEX
recovered from early losses to trade 0.2 percent stronger on the
Oil prices, however, were again more than 1 percent lower
and investors remain attracted by the perceived security of
The yen rose half a percent against the euro and
as high as 109.11 yen per dollar - its strongest in seven weeks
- before steadying. The greenback has lost 1 percent so far this
week, pressured by a sharp drop in U.S. Treasury yields to
A surprisingly closely-fought British election set for
Thursday is weighing on investors' minds along with U.S. Senate
testimony from James Comey, the former FBI chief fired by
President Donald Trump.
Any damaging revelations in Comey's testimony are likely to
further hurt Trump and take the wind out of his plans to roll
back regulations and overhaul the tax system - an agenda that
had sent the dollar to 14-year highs earlier this year.
"Tomorrow is what is being dubbed as 'Triple Threat
Thursday', ... an event-filled day that could send global
markets on a bumpy ride," said ING currency strategist Viraj
(Editing by Gareth Jones and Mark Potter)