Investors gave European banks the benefit of the doubt on Monday over stress tests that prompted more transparency from Spanish banks needing to raise capital than from German banks cagey about sovereign debt.
Spain's smaller regional lenders, or cajas, will start a roadshow in London on Monday aimed at reassuring investors after the test results on Friday showed five of their peers were among the seven banks that failed.
However, problems among the cajas have long been flagged and are being remedied, and Europe's banking index rose 1.1 percent on Monday to help the wider stock market push 0.2 percent higher by 5:40 a.m. ET.
The euro firmed slightly in the absence of any real shocks in the test of whether 91 banks in 20 countries could withstand another recession in the next two years, including some losses on government bonds.
Skepticism still lingered over the assessment that the seven banks that failed had a combined capital shortfall of 3.5 billion euros ($4.5 billion) — much smaller than expected.
Some German banks, including Deutsche Bank, were also criticized for not providing as much information as rivals about their exposure to sovereign debt in the euro zone — the major worry that prompted the tests. Deutsche Bank shares were down 1.4 percent, the weakest of the top names.
"On the surface, if anything, you have to take these tests with a pinch of salt," said Jonathan Cavenagh, currency strategist at Westpac, Sydney. "Sovereign debt problems remain, funding constraints for their banks are still there and these have the potential to weigh on the euro."
Even so, investors welcomed the chance to dig into more detail on banks' holdings of sovereign debt than they had before.
Sources familiar with the discussions said Germany fought hard behind closed doors to limit the extent of disclosure.
Attention was also on 17 banks who only scraped a pass, some of whom may opt to raise cash if the test fails to reduce their funding costs or soothe worries about risks, analysts said.
The euro was changing hands around $1.2934, slightly up from $1.2916 in New York on Friday.
Fears of a euro zone debt crisis and its impact on European banks had driven the euro below $1.19 last month, its lowest since 2006. But it began a swift recovery in July and hit a 10-week high above $1.30 last week.
AVOIDING DOUBLE-DIP
The subdued response in Europe was a far cry from the high anxiety in early May over Greece's debt crisis that global markets feared might spread like wildfire through Europe and beyond.
German Chancellor Angela Merkel said then that Europe's fate was at stake.
Stronger-than-expected economic data, and business confidence surveys suggesting the euro zone will avoid a double-dip recession despite fiscal austerity measures, have also helped revive investor confidence in Europe.
The detailed breakdowns should enable investors critical of the official test results to run their own risk simulations to gauge a counterparty's solidity.
That should help reopen the interbank lending market, which partially froze at the height of the euro zone debt crisis and has remained tight on fears banks have been hiding big exposures.
The stress test scenarios included how banks would cope with a double-dip recession, a 20-percent drop in stock markets and sharp rises in interest rates.
Investors chastised EU authorities for refusing to test the impact of a debt default by Greece. But European Central Bank governing council member Christian Noyer said euro zone states "have put several hundreds of billions of euros on the table with the support of the IMF to make this hypothesis completely excluded."
