European stocks rose on Tuesday morning, gaining ground for the first time in four sessions, as a memo from Citigroup's chief helped calm fears over the health of the embattled financial sector.
According to the memo from Citigroup's Chief Executive Vikram Pandit obtained by Reuters, the bank was profitable in the first two months of 2009 and is confident about its capital strength after tough internal stress tests. The memo said the bank was having its best quarter-to-date performance since the third quarter of 2007. Citigroup declined to comment on the memo.
"This certainly fuels hope that the worst could soon be behind them, and behind the sector in general," one London-based trader said.
Banking and insurance stocks — which have been Europe's biggest losers so far in 2009 — were in a rallying mood, with UniCredit gaining 6 percent, ING Groep adding 12 percent, Deutsche Bank up 6.2 percent, Barclays up 5.5 percent and AXA up 3.8 percent.
The DJ Stoxx European banking index is down 37 percent so far in 2009, while the DJ Stoxx European insurance index is down 42 percent.
At 0938 GMT the FTSEurofirst 300 index of top European shares was up 0.6 percent at 661.66 points. The index, which hit an all-time low on Monday, has tumbled nearly 60 percent since reaching a multi-year peak in mid-2007.
On the downside, Germany's E.ON dropped 8.3 percent after lowering its 2010 profit expectations some 10 percent due to the financial crisis, regulation and negative currency effects.
Other utility stocks were on the downside, with EDF down 1.1 percent and GDF Suez down 0.7 percent.
Mining stocks gained ground, with BHP Billiton up 3.3 percent and Rio Tinto up 6.3 percent, helped by steady metal prices.
On the macro side, investors were digesting grim data from China. The country fell into deflation at the consumer level last month for the first time in more than six years.
"These data may reignite fears of a global deflation at a time when the economic key issue to get out of the financial and economic crisis is that inflation is better then deflation," Global Equities said in a note.
"The lessons derived from the post-bubble crisis during the Great Depression and later in Sweden and Japan are many, but perhaps the most important one is the demonstrable need for a reflationary shock to end deflationary expectations and ensure positive nominal GDP growth."
Around Europe, UK's FTSE 100 index was up 0.2 percent, Germany's DAX index up 1.1 percent, and France's CAC 40 up 0.6 percent.
