The leading index of European shares edged closer to a fresh 2012 peak on Thursday, extending recent gains into a fifth straight session, on hopes China will act to further stimulate its economy and lift the global economic outlook. Data released on Thursday showed China's annual consumer inflation fell to a 30-month low in July.
That suggested the central bank has ample scope to ease policy again after rate cuts in June and July, to keep the world's second-biggest economy on track to meet an official 2012 growth target of 7.5 percent. The FTSEurofirst 300 index closed up 0.5 percent at 1,101.01. That is around half a percent away from its current 2012 closing peak of 1,106.79 hit on March 16, after the European Central Bank pumped a trillion euros of cash into the banking system.
The Euro STOXX 50 volatility index, Europe's main gauge of equity market investor anxiety, meanwhile, dropped to a three-week low, indicating a steady rise in risk appetite. "The markets have run up quite a bit for quite a while ... and the story is always the same - the hope for stimulus from the ECB, from the Federal Reserve, from the Chinese - from everywhere," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said.
"From now until the end of August, I'm not saying every day should be up, but normally I think we're going to have a firmer tone for the market." Bill McNamara, technical analyst at Charles Stanley, saw strong resistance for the FTEurofirst 300 at around 1,110, a level which sparked a strong sell-off in March 2012, July 2011, November 2010, and April 2010.
Cyclical shares such as banks and commodity stocks have propelled the market higher on the stimulus expectations. Banks were in demand on Thursday, with London-based Standard Chartered continuing to claw back recent steep losses, gaining 3.6 percent, as it fought accusations it abetted $250 billion of money-laundering transactions with Iran.
"The stakes are clearly very high. Given the high degree of uncertainty, and the possibility that the outcome may prove less damaging to StanChart than at first appeared, we think it is prudent to upgrade StanChart to neutral," BofA Merrill Lynch said in a note. Standard Chartered shares remain some 13 percent below closing levels on Friday, before they were roiled by the Iranian allegations. Trading volume in the stock was robust, at around two and a half times its 90-day daily average, against the FTEurofirst 300 at about 80 percent of its 90-day daily average.
Earnings news helped Norwegian offshore engineering group Subsea 7 rise 5.1 percent. Danish drugmaker Novo Nordisk added 1.3 percent after second-quarter revenue beat expectations, while forecast-beating results also lifted food giant Nestle 2.4 percent. Germany's second-biggest lender Commerzbank fell 4.2 percent after it said it expects net profit to shrink in the second half. Overall, earnings remain mixed. Thomson Reuters StarMine data showed that nearly three quarters of Europe's STOXX 600 companies have reported results so far, of which 50 percent met or exceeded forecasts.
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