Frankfurt: European shares got off to a robust start on Thursday after US and Asian stock markets rallied on prospects of rate cuts in the United States, while rate-sensitive financial stocks boosted European indices.
The US Federal Reserve held interest rates steady at 5.25% on Wednesday and said it remained uneasy about inflation, but dropped an explicit reference to the possibility of taking rates higher, leaving its options open.
Financial markets took the new wording as opening the door to lower interest rates, and the pan-European FTSEurofirst 300 index climbed 1.2% to 1,511.06 points.
Easing concern over US mortgage lending boosted European banking stocks in particular. Royal Bank of Scotland gained 2.3%, and HSBC, LLoyds and HBOS each made gains of around 1.5%.
Britain’s FTSE 100 was up almost 1%, Germany’s DAX gained 1.7% and France’s CAC 40 rose 1.2%.
Patrik Schowitz, strategist at HSBC, said: “It was surprising just how strongly the markets reacted, as the Fed was mildly dovish. It does have the feel now that the stock sell-off is over.”
US stocks jumped higher overnight with the S&P 500 notching its biggest percentage gain in eight months, while Asian stocks rallied, led by exporters, on growing optimism about the US economic outlook.
“People are clearly more concerned about interest rates than growth. We’re not going to see more out of the Fed unless growth disappoints massively or inflation rises strongly,” Schowitz added.
The Morgan Stanley index of world stock markets is now a little over 1% lower than the close on 26 Feb — day before recent shakeout, when Chinese shares plummeted on fears of a regulatory crackdown.
In the week to 5 March, the index lost 6.5%.
Among major movers, ING rose 2.6% after a newspaper said the Dutch bank hired Goldman Sachs and J.P. Morgan to help it find options to expand in the Benelux, possibly through a merger with Fortis, Dexia or KBC Bank, whose shares were all up around 3% each.
An ING spokesman said that it was looking at several strategic options and reiterated it would participate in consolidation.
Standard Life was up 0.7% after the insurer beat market forecasts with a 55% rise in 2006 profit and Italy’s leading bank UniCredit rose 1.8% after it posted forecast-beating 2006 net profit.
French builder Eiffage jumped temporarily more than 17% on speculation its main shareholder was increasing its stake. The stock fell back to around 5% after Sacyr Vallehermoso said it was not buying Eiffage shares but was still aiming to get on the company’s board.
Britain’s Next rose 5.2% after it beat forecasts with a 6.5% rise in annual profit, while Dutch retailer Ahold rose 0.2% after it beat market expectations as it more than doubled fourth-quarter net profit.