London: European shares bounced back on Monday, with firmer crude boosting energy stocks and investors grabbing riskier assets on expectations the US Federal Reserve may inject extra stimulus to maintain economic recovery.
At 1113 GMT, the FTSEurofirst 300 index of top European shares was 1.4% higher at 1,070.98 points after falling 1.1% on Friday.
Energy shares were among the top gainers as crude oil prices rose above $81 a barrel on a weaker dollar. Royal Dutch Shell, Repsol and Total rose 1.3 to 2.2%.
Market sentiment improved ahead of the US Federal Reserve’s meeting on Tuesday which may send a clear signal it is prepared to print more money to support a faltering economic recovery if necessary.
“Central banks around the world have proved that they will continue to be very accommodative to ensure that the recovery is coming through. Nervousness about the tightening of monetary policy certainly looks to be overdone,” said Henk Potts, equity strategist at Barclays Wealth.
The central bank is widely expected to renew its vow to keep rates near zero for “an extended period” and markets will watch closely for signs officials are growing more concerned the recovery is at risk or that there is danger of falling into a damaging vicious cycle of falling prices and slowing growth.
A disappointingly weak report on US employment in July, when the private sector added a meagre 71,000 new jobs, adds weight to arguments in favour of more stimulus.
“Today’s stronger price action is a result of investors betting that the Fed could start to inject extra stimulus into the markets,” said Joshua Raymond, strategist at City Index.
“But it’s a double edged sword as whilst extra stimulus could help to overcome fears of deflation and slow growth, it could equally force a dependence upon stimulus that could ultimately lift GDP artificially.”
Financials were among the top gainers, with the STOXX Europe 600 banking index rising 1.5%. HSBC, Barclays, BNP Paribas and UBS advanced 1.7 to 3%, also helped by recent strong earnings by several big banks.
“There may be some relief that we have gone through the second quarter reporting season, with the majority of companies exceeding analysts’ expectations. It’s a confirmation that the corporate picture still looks very bright despite the dark macro-economic environment,” Potts said.
The Euro STOXX 50 rose 1.5% to 2,822.26 points. The euro zone’s blue-chip index had a positive trend as it hovered above its 200-day moving average of 2,797 and a 61.8% Fibonacci retracement of 2,806 -- the index’s fall from a high in April to a low in May.
Bill McNamara, technical analyst at Charles Stanley, said that last week’s peak at 2,849 was the highest since the end of April and a close above that level would act as a confirmation that the recent bull trend is in good shape.
Miners got strength from higher metals prices, with copper jumping 1.2% and nickel rising 2.7%. BHP Billiton, Anglo American and Antofagasta rose 1.4 to 1.6%.
The market was also helped by comments by Zhang Yutai, head of the Development Research Centre, a think-tank under China’s cabinet, who said the country’s economy will enjoy a strong, stable second half, putting it on course for full-year growth of about 10 to 11%.
BP rose 1.7%. The oil major confirmed that no oil is leaking into the Gulf of Mexico following a successful effort to plug its blown-out the well on 15 July, but said the cost of dealing with the disaster has risen to $6.1 billion.
Across Europe, the FTSE 100, Germany’s DAX and France’s CAC 40 rose 1.3 to 1.6%, while the Thomson Reuters Peripheral Eurozone Countries Index was up 1.1%.