London: European shares hit their highest in a month on Thursday, led by banks, as strategists said a bailout for Portugal would give stability to the market, and interest rate rises would not derail equities’ advance.
Investors will focus on the European Central Bank (ECB) interest rate decision due at 5.15 pm.
A Reuters poll said the ECB is likely to raise interest rates as it focuses on controlling inflation, though it is not expected to give many clues on when the next rise will come, fearful not to hurt the euro zone’s struggling peripheral countries.
The Bank of England earlier kept interest rates at a record low of 0.5%, as expected.
At 4.05 pm, the pan-European FTSEurofirst 300 index of top shares was up 0.2% at 1,149.30 points after earlier hitting 1,151.50, the highest in nearly a month.
Banking stocks featured among the best performers, with the STOXX Europe 600 Banks index gaining 1.8%.
Portugal’s Millennium bcp, Banco Espirito Santo and BPI gained between 4.1 and 4.6 % after Portugal requested financial aid from the European Union, outperforming the country’s PSI 20 index, which was 1.3% higher.
Other banks to rise included BNP Paribas, Banco Santander and Credit Suisse, up between 2.1 and 2.8%.
Portugal is the third euro-zone country to seek a bailout, and investors are now watching to see if Spain could be next, though analysts say Spain’s financial position is improving.
“It’s all heading in the right direction. The debt markets are stable on the back of the Portuguese bailout. I think that’s a pretty good result,” said Dean Tenerelli, fund manager at T Rowe Price. “And the news yesterday on the capital raising for the financials (Commerzbank and Intesa Sanpaolo) reassures the market that Europe is dealing with the banks.”
He added that investors would not be troubled by the ECB raising rates, and were already expecting further rises. “The markets are not pricing in rates at 1.25% going forward. As long as the increases are slow and steady, that’s fine for equities.”