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Bank shares surge on rule change, but European markets fall

A trader at the German stock exchange in Frankfurt on September 12, 2012. Europe's main stock markets fell on Monday as investors took profits from big gains last week, but bank shares surged after a top rule-setting body said it would relax its asset requirements for the sector.

Europe's main stock markets fell back on Monday as investors booked profits from big gains last week, but bank shares surged after a top rule-setting body said it would relax its asset requirements for the sector.

At the beginning of the first full trading week in 2013, London's FTSE 100 index of leading companies lost 0.41 percent to 6,064.58 points, Frankfurt's DAX 30 dropped 0.56 percent to 7,732.66 points, and in Paris the CAC 40 fell 0.68 percent to 3,704.64 points.

The euro rose to $1.3098, which compared with $1.3067 late in New York on Friday. Gold prices slipped to $1,645.25 per ounce on the London Bullion Market, from $1,648.

"European markets have slid back from multi month highs as investors book profits ahead of the start of [the fourth quarter] earnings season in the US [and] as caution starts to outweigh the recent outbreak of bullish sentiment on the back of last week?s so-called fiscal cliff deal," said trader Toby Morris at CMC Markets UK.

Equities had rallied sharply last week in holiday-shortened trade after US lawmakers clinched a deal to avert a much-feared "fiscal cliff" of drastic tax rises and automatic spending cuts.

"The banking sector has been the stand out performer on the back of the weekend relaxation of the latest Basel 3 requirements," he added.

Over the weekend, the Basel Committee on Banking Supervision announced that it would give banks and financial institutions more time to meet global liquidity rules scheduled to begin in 2015.

The rules are aimed at improving the banking sector's ability to survive any future financial crises.

The Basel committee -- the world's top banking regulatory body -- said it would relax the severity of new rules which will require banks to increase their holdings of assets that can be sold quickly in times of stress.

In reaction to the news, Europe's major banking companies shot higher.

Barclays soared 3.8 percent to 287.2 pence and Lloyds Banking Group rose 1.28 percent to 50.5 pence in London.

Across in Frankfurt, Deutsche Bank stock won 2.8 percent to 35.77 euros and Commerzbank rallied 4.2 percent to 1.58 euros.

And in Paris, Credit Agricole advanced 3.5 percent to 6.57 euros, BNP Paribas gained 1.9 percent to 45.25 euros, while Societe Generale increased 2.7 percent to 30.13 euros.

"The Basel committee decision to allow banks more time to meet their capital targets is lending some support to financials..." said Mike McCudden, head of derivatives at online stockbroker Interactive Investor.

"Furthermore, with banks being allowed greater flexibility than anticipated, this softer approach from Basel will boost banking profits and is being greeted with some relief by investors."

The Basel III standards had been initially proposed in 2010 but banks and financial institutions have since lobbied intensively to make the rules more flexible and result in lower costs for the sector.

The details of the Liquidity Coverage Ratio (LCR), which was drafted to avoid a repetition of the 2008 banking crisis and unanimously endorsed on Sunday by the Basel group's top oversight body, give the banks a reprieve.

Its provisions include a much broader definition of the minimum assets every bank needs to hold, making it less costly for them to maintain the required buffer.

Shares in PSA Peugeot Citroen jumped 5.6 percent to 6.52 euros after an analyst said the troubled French auto manufacturer appreared to be ready to sell off its majority stake in car parts maker Faurecia in order to raise cash.

Fauricia shares gained 5.33 percent to 13.34 euros.

US stocks also moved lower Monday on profit taking, with the Dow Jones Industrial Average down by 0.58 percent to 13,356.72 points in midday training.

The broad-based S&P 500 fell 0.58 percent to 1,457.98 points, while the tech-heavy Nasdaq Composite lost 0.39 percent to 3,089.65 points.

Bank of America shares fell 0.62 percent to $12.03 after it announced a $11.6 billion deal to settle longstanding mortgage claims from Fannie Mae, and the sale of servicing rights on $306 billion worth of mortgages.

Asian markets mostly fell on Monday as last week's hefty gains prompted profit-taking, overshadowing Friday's Wall Street rally and upbeat US job creation figures.

Tokyo stocks -- which on Friday hit the highest level since before the quake and tsunami of March 2011 -- slipped 0.83 percent in value.

Hong Kong finished flat, but Shanghai closed up 0.37 percent, with traders optimistic about upcoming data, including inflation and trade figures, due out of Beijing soon.