LONDON: European shares rose on Wednesday and a key index climbed to a two-month high on speculation about a ceasefire in eastern Ukraine and more stimulus from the European Central Bank.
Russian President Vladimir Putin said on Wednesday a deal to end fighting in eastern Ukraine might be reached this week, which some took as an attempt to show the West he was trying to de-escalate the conflict.
Trading was nervous, however, as authorities seemed to send mixed messages. Putin's message marked a retreat from a statement earlier by Ukraine President Petro Poroshenko's press office, which said both presidents had agreed on a "permanent ceasefire".
The FTSEurofirst 300 index of top European shares closed 0.7 percent higher at 1,385.49 points, having earlier hit its highest level since July 7 at 1,391.56 points.
The euro zone blue-chip Euro STOXX 50 rose 1.2 percent at 3,218.84 points. Shares in Russia-exposed companies were among the top gainers.
Austrian lender Raiffeisen Bank International, which relies heavily on Russia for profits, and Danish brewer Carlsberg, which has a large exposure to the country through its Baltika brand, rose 6.2 percent and 2.3 percent, respectively.
Sentiment on the broader market was also underpinned by speculation that the ECB, due to hold a policy meeting on Thursday, might launch an asset-purchase programme, or quantitative easing (QE), after several recent reports signalled the region's economy was slowing further.
Markit's Composite Purchasing Managers' Index showed euro zone business grew at the slowest rate this year in August as escalating tension between Russia and Ukraine curbed spending and investment.
"(It's the) extension of the (ECB) trade, massaged by further weak PMI numbers and the intensity of the QE call, and even more so the (potential) Putin-organised ceasefire in Ukraine," said Andy Ash, head of sales at Monument Securities.
Comments by ECB President Mario Draghi in late August led to market bets on upcoming stimulus. However, ECB sources told Reuters last week that new action this Thursday was unlikely but not impossible, and that the barrier to QE was still "very high".
"We're expecting a strong verbal commitment from Draghi on Thursday," said Romain Boscher, global head of equities management at Amundi, which has 821 billion euros ($1.08 trillion) under management.
"The ECB still has plenty of ammunition left, and it will certainly use it when needed. The prospect of further action from the central bank remains very supportive for risky assets such as equities."
Bucking the trend was French luxury handbag maker Hermes . Its shares tumbled 3.4 percent on huge volumes after it struck a deal with bigger rival LVMH that resolves their dispute over LVMH's 23.2 percent stake in the maker of Birkin and Kelly handbags.
The deal effectively quashed the possibility that LVMH could make a full takeover bid for Hermes.
German retailer Hugo Boss dropped by 5.7 percent after an investment company controlled by private equity investor Permira placed an 11 percent stake of the company's total capital.
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