European stocks start new year with broad rally

European stocks start new year with broad rally

Paris: European stocks ended higher on Monday, starting the new year with a broad-based rally led by construction and industrial shares as softer-than-expected factory inflation data from China eased concerns of a tightening in monetary policy.

Automakers also made lofty gains, boosted by German luxury car maker Porsche’s 15% jump after a US federal judge dismissed a lawsuit by hedge fund groups accusing the company of cornering the market in shares of Volkswagen AG.

The FTSEurofirst 300 index of top European shares closed 1% higher at 1,132.30 points, following a 7.3% gain in 2010.

Trading was muted on Monday, however, as UK markets remained closed for a holiday. The volume on the FTSEurofirst 300 was only 55% of the index’s 90-day average daily volume.

US economic data also lifted the mood, with factory and housing data pointing to a strengthening recovery, though some saw clouds overhanging the market.

“Despite the fact that the macro landscape is relatively positive, the stock rally remains fragile and dominated by one theme: the exposure to emerging growth," said Jacques Henry, analyst at Louis Capital Markets in Paris.

“Skittish investors continue to fret about the fate of debt-ridden economies in the euro zone," he added, noting the rise again of credit-default swaps of Greece and Ireland.

German conglomerate Siemens gained 1.4%, and French cement maker Lafarge rose 2.4%.

Auto shares gained ground, helped by Porsche’s surge as well as by South Korean carmakers’ prediction of rising 2011 sales on US and China growth.

Volkswagen shares rose 5.1%, BMW added 4.4% and PSA Peugeot Citroen gained 3.4%.

European stocks ended 2010 with a brisk December rally, propelled by expectations of strong growth in emerging markets as well as a brighter economic outlook in the United States after further stimulus measures.

But the Christmas rally stalled last week after China’s surprise interest rate hike -- the second in just over two months-- fuelled fears of further monetary tightening as Chinese authorities stepped up their battle to rein in stubbornly high inflation.

Weekend data, however, showed China’s factory inflation cooled in December as manufacturers expanded more slowly after a strong run in growth.

Across Europe, Germany’s DAX, which gained 16% in 2010, rose 1.1% on Monday, while France’s CAC 40 added 2.5%, following a 3.3% fall last year.

French media group Lagardere rose 9.4% to a 14-month high after revealing it has entered exclusive negotiations with privately held Hearst Corp to sell its international magazines and press business.

“The valuation level mentioned confirms the high figures which were circulating at the start of December and should be welcomed by the market," said CM-CIC Securities analyst Eric Ravary.

Nokia gained 3.6% after a research group forecast brisk sales of its flagship N8 handset, which the cellphone maker hopes will help it claw back its market share in the lucrative smartphone sector.