Bank Shares Follow Bond Yields Higher

Dollar extends gains

-- Bund yield climbs above 0.5%

-- Global bank shares rally

European stocks stalled Thursday after five sessions of gains, but global bank shares continued to chase bond yields higher as investors bet on stronger growth and tighter monetary policy.

The Stoxx Europe 600 was flat shortly after markets opened as gains in the banking sector were offset by declines in miners and retailers.

Shares of Swedish fashion company Hennes & Mauritz fell 4.6%, weighing down the broader index, after releasing third-quarter results that disappointed investors.

Copper producer Antofagasta and U.K.-based miner Anglo American also came under pressure as a stronger dollar and expectations for higher interest rates weighed down metals prices.

European banks continued to climb, however echoing a rally in their U.S. and Asian peers as investors digested a GOP proposal to sharply reduce tax rates on businesses and many individuals that boosted government bond yields globally on Wednesday. Higher yields and the prospect of higher interest rates tends to boost lenders' profitability.

Yields on 10-year Treasurys climbed Thursday to 2.352% from 2.309% after their biggest daily gain since March. Yields on 10-year German government bonds rose to 0.508% from 0.461% on Wednesday, around their highest since early August. Yields move inversely to prices.

Republicans in Washington released a plan to overhaul the tax code, which they hope will boost economic growth.

"The tax plan, if passed in its current form, could increase the GDP growth by at least 0.5% per year," according to strategists at RBC Capital Markets, suggesting that would have a knock-on effect on the Federal Reserve's interest rate plans.

Investors were already betting the Fed was likely to raise interest rates in December following speeches from Fed officials earlier this week.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was last up 0.1% after its biggest three-day gain this year.

Earlier, higher bond yields and a weaker yen lifted shares in Japan. The Nikkei Stock Average was up 0.5%, recovering from Wednesday's declines when companies paid dividends. Shares of banks and insurers, which are large holders of U.S. government bonds, drove gains in Tokyo shares.

Banking stocks also drove Australia's benchmark index higher, with the S&P/ASX 200 up 0.1%.

Chinese markets faced selling pressure ahead of a week-long break. The Shanghai Composite Index was down 0.2%. Hong Kong's Hang Seng Index was down 0.2% amid declines in China-related stocks.

"People are hesitating to buy shares in the market given holidays next week," said Ivan Ip, a stock strategist at UOB Group in Hong Kong.

Though the city's stock exchange will be open for three days next week, a full-week closure in mainland China for the National Day holiday will significantly reduce trading volumes, analysts said. Already, Chinese stock investment flows to Hong Kong are down.

Still, Hong Kong's biggest share listing of the year posted a strong debut on Thursday. ZhongAn Online P&C Insurance, a Chinese insurer, opened up 16%.

Kevin Kingsbury and Kosaku Narioka contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

September 28, 2017 03:54 ET (07:54 GMT)