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European stocks ended higher on Friday, with a key eurozone index hitting its highest closing level in nearly four weeks, as speculation of co-ordinated action by the world's top central banks eclipsed jitters over Greece's cliff-hanger vote on Sunday.
The FTSEurofirst 300 index of top European shares closed 1 percent higher at 993.23 points, while the euro zone's blue-chip Euro STOXX 50 index ended 1.5 percent higher at 2,181.23 points.
Greece's leftist SYRIZA party is currently running neck-and-neck with conservative New Democracy party ahead of Sunday's vote, and although no party has called for euro exit, SYRIZA rejects the tough terms of the country's bailout, without which Greece will default.
G20 officials said central banks around the world were standing ready to stabilise financial markets by providing liquidity in case election results in Greece revive fears of a messy exit from the eurozone and cause financial upheaval.
Shares in financial institutions paced the gains, with ING Groep adding 5.6 percent, Barclays gaining 4.2 percent, BNP Paribas rising 4.3 percent, and Credit Agricole surging 6.3 percent.
"The idea was to buy ahead of the Greek vote, as people have been pricing in 'Armageddon'. This strategy has paid off over the past two weeks and we could see more gains early next week," Louis Capital Markets trader Jerome Troin-Lajous said.
"But people should quickly cash in the gains after that, as the Fed on Wednesday will probably dampen hopes of an imminent QE3 in my view. Long-term investors should then reduce their exposure, while aggressive traders should short the market."
US Federal Reserve officials head into a June 19-20 policy meeting under pressure to take further steps to boost the stalled US economic recovery and revive the faltering labour market.
A recent poll by Reuters found that a rising number of economists expect the Fed will come up with some form of quantitative easing action, if not in the coming week then soon, in response to the weakening jobs market.
"Following the recent flow of disappointing data, an important number of investors, analysts and big sell-side names have switched to 'wishful thinking mode' about QE3," Troin-Lajous said.
"But it won't come next week in my view, which will trigger massive disappointment among equities investors, while bond markets are much more cautious."
US government debt prices - which usually trade in opposite direction to equities - also climbed on Friday, signalling a rare divergence of investor sentiment among the two asset classes.
Around Europe, UK's FTSE 100 index gained 0.2 percent, Germany's DAX index added 1.5 percent, and France's CAC 40 rose 1.8 percent.
Spain's IBEX added 0.3 percent while Italy's FTSE MIB climbed 2.3 percent.
Investors were snapping up 'call' options and dumping 'put' options on the Euro STOXX 50 index on Friday, positioning themselves for a potential relief rally in equities next week.
The put/call ratio of Euro STOXX 50 options - a ratio of the trading volume of put options versus call options used to gauge investor sentiment - has dropped to 1, down from a peak of 1.78 10 days ago, signalling a rise in investors' bullishness.

Copyright Reuters, 2012

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