European shares rose to two-month highs on Friday, with export-driven stocks such as autos leading the way as China announced a surprise rate cut just a day after the ECB signalled the possibility of stronger stimulus measures. The pan-European FTSEurofirst 300 index rose 1.95 percent, building on a 2.1 percent gain in the previous session, while the euro zone's blue-chip Euro STOXX 50 index advanced 2.17 percent.
China's central bank cut interest rates for the sixth time since November on Friday, and it again lowered the amount of cash that banks must hold as reserves in another attempt to jumpstart a slowing economy. The European Central Bank on Thursday kept interest rates unchanged at a record low, but its chief Mario Draghi opened the door to a possible deposit rate cut and said the bank would re-examine its quantitative easing scheme in December.
"All export-oriented sectors that suffered in August and September such as luxury and big industrial will certainly benefit from the Chinese rate cut," said Consultinvest fund manager Enrico Vaccari. The STOXX Europe 600 Automobiles Index rose 3.2 percent to outperform other equity sectors. Carmakers benefited from a drop in the euro on the prospect of more monetary stimulus, since a weaker euro typically makes European cars more affordable for overseas buyers.
Germany's DAX closed its strongest week since end 2011 with a gain on Friday of 2.8 percent, helped by a rise in carmakers such as Daimler and BMW. "The DAX is a big runner today, as it typically performs well on euro weakness," said Hance Markets analyst Richard Perry.
European stocks were also propped up by some solid earnings updates. Shares in Norwegian insurer Gjensidige surged 12.3 percent after reporting third-quarter profits ahead of market expectations. French luxury goods group Kerning also rose 10.6 percent after reporting a dip in sales that was not as bad as some analysts had feared. However, telecoms network equipment maker Ericsson fell 6 percent after its third-quarter revenue and profits missed market expectations, while shares in British broadband supplier TalkTalk fell 4.4 percent after a cyber attack on its website.
A.P. Moller-Maersk sank 5.2 percent after the shipping and oil giant cut its full-year outlook for underlying profit by 15 percent, citing deterioration in the container shipping market. Nevertheless, according to data from Thomson Reuters StarMine, 64 percent of companies on the European STOXX 600 index have so far have beaten or met market forecasts for the third quarter.
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