Fed stimulus propels Europe shares to 6-month high

Fed stimulus propels Europe shares to 6-month high

London: European equities climbed to 6-month highs on Thursday, with appetite for risky assets jumping after the US Federal Reserve unveiled fresh stimulus plans to lower borrowing costs for consumers and businesses.

The central bank, which had come under intense pressure to take action to increase business activity and create more jobs, on Wednesday committed to buy $600 billion in government bonds, and said it could adjust purchases depending on the strength of the recovery.

At 05:30 pm, the FTSEurofirst 300 index of top European shares was up 1.4% at 1,104.27 points, after rising to 1,106.10, the highest since late April.

Construction and materials shares topped the gainers list, with the sector index surging 3.1% on hopes a global economic recovery will boost construction activities.

Swedish construction company Skanska rose 4.2%, also helped by its better-than-expected third-quarter pretax profit, while CRH, Holcim and FLSmidth gained 3.1 to 5.1%.

Analysts said the market will now focus on economic numbers. “The Fed did leave the door open and could take further action later down the road. That might be another factor boosting investor confidence," said Keith Bowman, equity analyst at Hargreaves Lansdown.

“We have got another major hurdle to come this Friday with the release of US jobs data. The QE2 provided some support, but investors will still be looking to see how the economic data is panning out and where that takes the authorities next."

The decision takes the Fed into largely uncharted waters, with the country still suffering in the aftermath of the worst recession since the Great Depression.

ECB decision eyed

However, the Fed’s move and fresh concerns about heavily indebted euro zone states were unlikely to divert the European Central Bank (ECB) away from its crisis exit path. The ECB is likely to leave rates at a record low 1% later in the session. The Bank of England left rates at 0.5% on Thursday.

Investors rushed to grab riskier assets such as equities and commodities, and the mood was captured by the VDAX-NEW volatility index, one of Europe’s main barometers of investor anxiety, which fell 12% to hit a near two-week low. The lower the index, the higher the market’s desire to take risk.

Miners got strength from higher metals prices, which rose on expectations the Fed’s move would help economic recovery, and spur demand for raw materials. Anglo American, Antofagasta, Rio Tinto, Xstrata and Eurasian Natural Resources rose 3.7 to 4.7%.

BHP Billiton jumped 5.1% after Canada blocked its $39 billion bid for Potash Corp. Investors bet the miner will return capital through a share buyback or expand its interests in oil and gas.

Analysts said strong company results also helped the market. BNP Paribas, France’s biggest listed bank, rose 4.4% after forecast-beating third-quarter results.

“Consensus-beating results continue to be supportive to the market along with the fact authorities seem to be ready, willing and able to support the economic recovery, which is good news," Henk Potts, equity strategist at Barclays Wealth, said. Unilever gained 5.8%. It matched forecasts with a rise in third-quarter sales, and said it could raise prices and cut costs to counter higher commodity costs.

EADS fell 3% after Qantas Airways suspended all Airbus A380 flights in response to an incident of engine failure on one plane in Singapore.