London: European shares headed for their highest close in more than a month on Friday, with miners up as metals prices were boosted by an improving economic outlook and a weaker dollar.
At 4:28pm, the FTSEurofirst 300 index of top European shares was up 0.5% at 1,150.11 points, on course for the highest close since early March and a third weekly gain.
The European benchmark is up more than 78% from its lifetime low of March, 2009.
Strategists said monetary stimulus, such as the U.S. Federal Reserve’s quantitative easing was a key factor in continuing to boost markets. It was helping investors look past a host of negatives such as Japan’s nuclear crisis, tension in the Arab world, and the euro zone’s debt crisis and rising interest rates.
“The resilience the market is showing against a hostile background is quite remarkable,” said Richard Jeffrey chief investment officer at Cazenove Capital Management, which has 15 billion pounds under management.
“In some respects, it’s an indication of the liquidity in the international finance system through quantitative easing. It would appear that is a more powerful force than the ECB tightening.”
However, the Fed is likely to end its $600 billion bond-buying programme within the next two or three months and it may raise interest rates. Jeffrey said markets might then “hesitate”.
Gold struck a record high on Friday, and silver crossed $40 an ounce for the first time since 1980, as a weaker dollar and concerns about inflation sent investors piling into precious metals.
Base metals also gained sharply. Miners to gain included Anglo American, BHP Billiton and Fresnillo, up between 2.1 and 2.7%. Insurance stocks were also among the top gainers on Friday, with AXA, Swiss Life, Old Mutual and Aviva, up between 1.7 and 3.3%.
In a note to clients, UniCredit recommended investors to take long positions on European insurance stocks and short retailers’ stocks as the ECB’s rate rise will be supportive to the insurance sector while crimping consumer spending.
Among individual shares, Dutch mail company TNT fell 10% after saying it will push ahead with spinning off its express unit, despite changing the outlook for the unit due to oil prices, political unrest and natural disasters.
Technical indicators were positive, with the pan-European index having broken through key levels. The index rose above its 50-day moving average, and is also above the 61.8% Fibonacci retracement level of its fall to its lowest point in 2011, in March, from a February high.
“A bullish continuation pattern....is confirmed,” said Philippe Delabarre, technical analyst, at Trading Central, in Paris, writing about the Stoxx 50, which rose 0.4% to 2,649.46 points. He gave a short-term target of 2,920.
As expected, the European Central Bank raised interest rates for the first time since the 2008 financial crisis on Thursday, and market expectations of more hikes this year sent the euro to a 15-month high against the dollar, boosting foreign investors’ appetite for the region’s stocks as they seek exposure to the rallying currency.
“The ECB’s move is sort of removing the punch bowl, which is a good thing at this point. The message is that overall, the European economy has been improving,” a Paris-based trader said.
Citigroup said in a note that global growth “should support double digit earnings growth for European companies.”
It added: “We forecast double-digit returns for equities as markets track expected earnings growth in 2011. Stay bullish. Absolute valuations are around average, while equities continue to look attractive relative to bonds in a more inflationary world.”