European shares rose on Monday, led by telecoms group Nokia, as hopes for fresh stimulus measures from central banks lifted the region's equity markets. The euro zone's blue-chip Euro STOXX 50 index closed up 1.1 percent at 2,461.82 points. The FTSEurofirst 300 index also rose 0.5 percent to 1,095.98 points, although trading volumes were low with London closed for a public holiday.
---- Expectations of Fed, ECB action underpin equities
Traders said comments from a top US Federal Reserve official that the Fed should launch a fresh round of monetary easing immediately helped buoy markets, as did a belief that the European Central Bank would also act soon. "We're cautiously optimistic that governments and central banks seem to have acknowledged that they will intervene. There will be more easing going forward," said Cyrille Urfer, who heads up asset allocation at Swiss bank Gonet.
Nokia rose 7.7 percent after analysts said the company was well-placed to benefit from a setback to rival Samsung, which lost a high-profile patent court case to Apple and could see sales of certain products hit. "In addition to Apple, we name Microsoft and Nokia as the main beneficiaries from this outcome," said Nordea analyst Sami Sarkamies.
Investors said European stock markets were likely to trade within a narrow range before the annual meeting of central bankers at Jackson Hole, Wyoming, that starts on Friday. Federal Reserve Chairman Ben Bernanke has used previous such gatherings to signal further policy easing. However, Gonet's Urfer said any signal of new monetary easing from the Fed, which could weaken the US dollar against other currencies such as the euro, could give another boost to European stocks.
"We might see some weakness on that front, and see investors moving out of the dollar and into more risky assets such as European equities or the euro," said Urfer. The Euro STOXX 50 has risen around 14 percent since July 25, which was the day before ECB head Mario Draghi pledged to do "whatever it takes" to protect the euro from the region's sovereign debt crisis, thereby sparking an equity market rally.
However, much of this rally has come on low trading volumes, indicating that some investors have doubts over whether the ECB will turn its pledges into concrete action. Nevertheless, demand from investors for 'call' options - which give an investor the right to buy an asset at a fixed price in the future and is used when people think a price will rise - has still outstripped demand for "put" options, which are used to sell an asset in the future.
Societe Generale analysts said in a research note that the most in-demand 'call' out on the Euro STOXX 50 with a September maturity had a strike price at 2,600 points, or around 7 percent above the actual market level. The next most traded were a 'call' out at 2,500 points, which kicks in after a 3 percent rise in the underlying cash index, and a put at 2,300 points, equivalent to a 6 percent fall from current levels. By the end of trade on Friday, the put-call ratio on the Euro STOXX 50 was at 0.86, indicating more calls were traded than puts. A ratio below 1 usually signals bullishness.
Some investors said that even if the Fed and ECB disappointed traders in September by not announcing any immediate new stimulus measures, equity markets would still remain above the lows to which they fell in June. "There is definitely progress being made by the policymakers. They have restored a certain degree of confidence and even if they disappoint, I would not expect a return to the previous June lows," said Didier Duret, chief investment officer at ABN Amro Private Banking.