European stocks rise, Britain downgrade taken calmly

European stock markets rose solidly on Monday following gains in Asia, as traders partly brushed off a credit downgrade for Britain and awaited the result of elections in indebted eurozone nation Italy.

Equities had already risen on Friday as traders welcomed improving economic fortunes in Germany.

In Monday morning deals, London's FTSE 100 index of top companies rose 0.49 percent to 6,367.04 points, Frankfurt's DAX surged 1.81 percent to 7,799.41 points and in Paris the CAC 40 jumped 0.93 percent to 3,738.83.

Milan advanced 1.20 percent to 16,429.12 points, as polls reopened in Italy for a second and final day of voting in a crucial election in which the centre-left Democratic Party was expected to win but fall short of a majority.

Democratic Party leader Pier Luigi Bersani has said he is the best man to help promote a growth agenda for Europe and "turn the page" after years of Silvio Berlusconi, who polls indicate could come in second.

"European financial markets are on the up Monday...thanks to an upbeat session in Asia overnight where markets extended last week's advance," said Ishaq Siddiqi, market strategist at ETX Capital trading group.

After markets closed on Friday, Moody's stripped Britain of its triple-A debt rating, saying government debt was still mounting and that growth was too weak to reverse the trend before 2016 -- heaping more pressure on the pound.

In reaction, the price of British 10-year debt bonds fell slightly on Monday and the interest rate firmed slightly to 2.144 percent from 2.109 percent on Friday before the downgrade.

"The news is by no means unexpected, and sterling naturally has weakened...but not by as much as many would expect and that's purely because we've already seen the currency plummet in the run up to the announcement," said Angus Campbell, head of market analysis at Capital Spreads traders.

The pound hit $1.5073 in Asian trading hours -- the lowest level for 2.5 years. Britain's currency had reached similar lows last week on anticipation of a downgrade.

After hitting a fresh low-point on Monday, the pound recovered in trading in London to reach $1.5143, which compared with $1.5162 on Friday.

"Traders are likely to shrug off the downgrade as it has been priced-in for some time and more importantly, does not fundamentally change the UK's overall investment value," said Siddiqi.

"Most in the markets see it as a symbolic move that will likely heat up the political discussions over the UK's damp economic growth prospects and spur the coalition government to launch bolder policies to drive growth," he added.

In an expected rebuff to the British government's hopes that sharp spending cuts would both reduce its deficit and give growth a boost, the rating agency cut Britain's grade by one notch to Aa1.

The downgrade came three months after Moody's removed France's AAA rating, as the continuing European financial crisis humbles what were once the world's most solid economies.

But while France has resisted deep cuts to spending to balance its books -- and instead moved to raise taxes on the wealthy -- London has opted for a course of austerity.

Elsewhere on Monday, the euro firmed to $1.3236 from $1.3189 on Friday.

Gold prices increased to $1,591.14 an ounce on the London Bullion Market from $1,576.50 on Friday.

-- BP shares down ahead of US trial --

In corporate news on Monday, BP shares climbed 1.80 percent to 452 pence, awaiting the start of a complex US trial to determine how much more the British energy giant should pay for the devastating 2010 Gulf of Mexico oil spill.

According to the Wall Street Journal, US authorities plan to propose a $16-billion settlement for civil claims.

BP has already resolved thousands of lawsuits linked to the deadly disaster out of court, costing the firm billions of dollars.

Shares in Pearson fell by 4.0 percent to 1,167 pence after the British publisher and owner of the Financial Times newspaper said annual net profit plunged by 66 percent in 2012 as its print business came under pressure from fast-growing digital media.

Profits after tax dived to £326 million ($493 million, 373 million euros) last year compared with net earnings of £957 million in 2011, while the group said it expected a tough 12 months ahead.

Asian stock markets mostly closed higher on Monday, with Tokyo surging after the yen hit a near three-year low against the dollar, while concerns eased that the US Federal Reserve could soon end its loose monetary policy, dealers said.

Investors in Japan cheered reports that the likely next central bank chief was in favour of aggressive monetary easing.

burs-bcp/rfj/hd

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