EUROPE MARKETS: Banks Drive Gains For Europe After Cyprus Deal

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stocks staged a relief rally Monday, with banks in the driver's seat, after Cyprus and its international lenders early in the morning struck a deal to save the country from bankruptcy.

The Stoxx Europe 600 index rose 1% to 296.82, climbing back after a 1.1% loss from last week.

All eyes remained on Cyprus, where the cash-strapped nation reached a deal on bailout terms with the European Central Bank, the European Commission and the International Monetary Fund, also referred to as the troika, clearing the main hurdle to secure 10 billion euros ($13 billion) in financing.

As part of the agreement, there will be a deep restructuring of two of the largest Cypriot banks, as well as a downsizing of the country's overall banking sector. Additionally, a substantial levy on bank deposits above EUR100,000 was kept in place, scrapping a controversial tax on deposits below that level, which was heavily debated last week.

The Cyprus Stock Exchange was closed for trading all of last week, but said it would recommence as normal on Tuesday. Monday is a public holiday in Cyprus.

"The deal may give short-term calm, but it raises new potential problems for the future as capital controls and losses on deposits set a dangerous precedent," analysts at Danske Bank wrote in a note. Read: Cyprus still at euro-zone exit risk -- Moody's

"Future problems in Greece or Spain could escalate faster as capital controls and losses for deposits above EUR100,000 will now be seen as a real possibility," they added.

Banking shares, which were among the hardest hit sectors last week, recouped on Monday.

Shares of Banca Popolare dell'Emilia Romagna Scarl rose 1.8% in Milan, Credit Agricole SA added 2.1% in Paris and Barclays PLC (BCS) gained 2.7% in London.

Among country-specific indexes, France's CAC 40 index traded 1.2% higher at 3,821.89 and Germany's DAX 30 index rose 1.2% to 8,007.80.

Shares of Bayer AG rose 2.1% in Germany, as Japan's Ministry of Health, Labor and Welfare approved the drug maker's Stivarga tablets for treatment of advanced colorectal cancer.

In France, drug maker Sanofi SA (SNY) added 1%. The company said it has signed a joint venture agreement with Transgene SA , up 4.2%, for production of immunotherapy products.

The U.K.'s FTSE 100 index added 0.9% to 6,451.94, further lifted by Vodafone Group PLC (VOD) which rose 3.4%.

The Sunday Times reported that the U.K. mobile operator eyes selling its shares in a venture with Verizon Communications Inc. (VZ), potentially leading to a $135 billion windfall for Vodafone and an exit from the U.S. market.

U.S. stock futures pointed to a higher open on Wall Street, ahead of a panel discussion featuring Federal Reserve Chairman Ben Bernanke. See: 6 gut checks before the stock market's opening bell

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