Gains in heavyweight banking and mining stocks drove European shares to fresh peaks on Friday, as the European Central Bank's (ECB) bond-buying plan and expectations of more monetary stimulus measures boosted the region's equity markets. The FTSEurofirst 300 index closed up 0.2 percent at 1,106.72 points.
The index fell back from an earlier 13-month intraday high of 1,113.22 points after weaker-than-expected US jobs data, but finished at its best closing level since ending on 1,109.55 points on August 21. The euro zone's Euro STOXX 50 index rose 0.5 percent to 2,538.60 points, with top performers including French bank Societe Generale and steel group ArcelorMittal. The Euro STOXX 50 index also recorded its best week of gains for this year, rising 4 percent during the week.
Traders said the plan by ECB head Mario Draghi for a new and potentially unlimited bond-buying programme to fight Europe's sovereign debt crisis, unveiled in the previous session, had removed the risk of a major economic implosion in the region. "Once you start to remove an element of tail-risk from market participants' concerns, that tends to be enough to send the market higher, particularly from its oversold position in June," said Neil Wilkinson, European equities fund manager at Royal London Asset Management.
The European mining and banking indexes, which tend to either outperform a rising market or underperform a falling market, were the best performing European equity sectors, rising 3.2 and 2.1 percent respectively. Draghi's plan is intended to help lower the borrowing costs of Spain and Italy, seen as the next potential victims in the euro zone debt crisis which has already resulted in sovereign bailouts for Greece and several other smaller nations.
Spain's IBEX stock market rose 0.3 percent, while Italy's FTSE MIB equity index rose 2.1 percent, as investors said the ECB had, at the very least, bought more time for European leaders to agree new steps to fight the crisis. "We bought some more Italian bonds and bank equities," said Emanuel Arbib, head of Integrated Asset Management. Some analysts added that although the US jobs data showed a sharp slowdown in jobs growth, the weak outlook could increase the chances of more quantitative easing (QE) from the Federal Reserve, which could also boost stocks.
Several potential hurdles remain in the path of European policymakers looking to fix the region's economic problems, since new steps have to be agreed by national governments, with some German politicians opposed to the ECB's plans. However, strategists at US bank Citi said European equities were still an attractive bet, adding they expected the pan-European STOXX 600 index, which rose 0.2 percent to 272.30 points, to finish 2012 at 275 points.
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