STOCK markets were calmed and showed signs of recovery last night as US retail sales came in better than expected and European bourses reacted favourably to a ban on short-selling by some European governments.
Investors could only hold their breath as world markets endured wild swings all this week sparked by concerns over the health of the US economy, sovereign debt fears and rumours over the financial position of several of France's leading banks, with Socit Gnrale and BNP Paribas singled out.
But last night the FTSE 100 index clawed back some of the hefty losses seen in the past fortnight, to close 157.2 points higher at 5,320 while indices in Germany, Italy and Spain also showed healthy gains.
The US retail data - sales had their best showing in months, rising 0.5 per cent in July - offered some reassurance over the state of the American economy and provided a bright finish to a week of extreme volatility on Wall Street.
But Rob Harbron, an economist at the Centre for Economics and Business Research, sounded a note of caution around the unexpectedly buoyant figures as they did not take into account US inflation, which stood at 3.6 per cent in June.
The Dow Jones Industrial Average either rose of fell by more than 400 points in each of the past four days of trading - the first time it has done so in the index's 115-year history - and moved higher again yesterday with a rise of 1.7 per cent.
The CAC-40 in Paris jumped 4 per cent after the markets took on board assurances that French banks were sound. Christian Noyer, the head of France's central bank, said rumours about the health and funding needs of indebted governments and some of their major banks were "unfounded", while Socit Gnrale chief Frederic Oudea added that clients could have confidence in his bank.
Worries about the health of French banks had disconcerted the share prices of UK banks, with fears over the knock-on impact hitting Barclays, HSBC and Royal Bank of Scotland. Last night the relief rally found Barclays ahead 9.4p at 187.2p, RBS 1.22p higher at 26.5p, and Lloyds Banking Group up 1.6p at 33.8p
In response to the gyrating markets, Belgium, France, Italy and Spain imposed bans on short-selling, the practice of selling then buying back assets, usually securities, that have been borrowed from a third party, in order to make money in a falling market.
Brokers and academics were united in their condemnation of the ban yesterday.The EDHEC-Risk Institute rubbished the policy action after it revealed recent bans had actually increased volatility on leading market and financial indices in France, Germany, the UK and the US.
"EDHEC-Risk Institute denounces the decisions to impose or extend short-selling bans as a political smokescreen that is likely to be counterproductive, both directly by disrupting market functioning and degrading market quality at a most testing time, and indirectly by further fuelling defiance vis--vis sovereign states and the continued inability of their political institutions to address the causes of the current crisis," the institute said.
Britain, Austria and the Netherlands said they saw no need for action. Germany said it would instead push for a Europe-wide ban on so-called "naked" short-selling where the trader does not even borrow the stock.