October 12, 2015 / 9:09 AM / 5 years ago

UPDATE 3-German utilities gain most since 2008 on nuclear stress test

* German Econ Min says provisions fully cover costs

* Test results remove major investor concerns

* RWE shares up 12.5 pct, E.ON up 6.8 pct (Adds context, updates shares, analyst summary)

By Christoph Steitz

FRANKFURT, Oct 12 (Reuters) - Shares in E.ON and RWE surged the most in seven years on Monday, boosted by the results of a much awaited government review that concluded German utilities have set aside enough money to decommission their nuclear plants.

The results come as a rare show of political support for Germany’s “big four” energy groups — E.ON, RWE, EnBW and Vattenfall — which have been hit by a surge in competition from subsidised renewable energy as well as Germany’s decision to phase out nuclear power by 2022.

They also remove concerns that utilities may need to raise additional funding to pay for the dismantling process as well as the storage of nuclear waste, a major worry that led investors to sell off utility stocks in recent weeks and question their financial strength.

At 1207 GMT, shares in E.ON were up 6.8 percent, while shares in RWE gained 12.5 percent, adding about 2.2 billion euros ($2.5 billion) in combined market value and putting them on track for their biggest one-day gains since late 2008.

Thinly traded shares in EnBW were 0.5 percent higher.

The jump came after Germany’s Economy Ministry released results of a stress test on Saturday, saying the 38.3 billion euros in funds set aside to pay for nuclear decommissioning “fully covered” the costs.

Several brokerages, including Deutsche Bank, Credit Suisse, Equinet, Societe Generale and DZ Bank either upgraded their ratings or target prices on Germany’s utilities as a result.

“What was encouraging to us was that the report found the current accounting methodology appropriate,” Deutsche Bank analysts wrote in a note, adding this reduced the risk of raising additional funds via asset sales.

Analysts, however, cautioned the operating environment for utilities remained challenging, with ultra-low wholesale power prices squeezing the margins of gas and coal-fired power plants, amid pressure from rival renewable sources.

Investor focus will now shift to the planned set-up of a commission to safeguard the nuclear provisions, for example, by transferring them into a public trust fund to prevent the taxpayer from footing the bill if one of the companies runs into financial trouble.

The commission, to be set up by the Economy Ministry, is due to come up with proposals by the end of November.

“That is still one uncertainty facing E.ON and RWE, but we believe that any eventual solution will be very gradual and long term,” analysts at Societe Generale wrote, raising RWE to “buy” from “hold”.

($1 = 0.8799 euros)

Editing by Maria Sheahan and Mark Potter

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