Europe stocks rally as Fed move lifts risk appetite

By Blaise Robinson

PARIS (BestGrowthStock) – European stocks rallied on Thursday and hit levels not seen since April as the U.S. Federal Reserve’s decision to pump more money into the economy spurred a sharp rise in investors’ appetite for risk and weighed on the dollar.

The FTSEurofirst 300 (.FTEU3: ) index of top European shares closed 1.7 percent higher at 1,107.05 points — marking its biggest one-day rise in more than two months — while both the UK’s FTSE 100 index (.FTSE: ) and Germany’s DAX index (.GDAXI: ) reached two-year highs.

“It’s good news to see the Fed taking action, and we have to trust (Fed Chairman Ben) Bernanke to make sure things don’t get out of hand,” said David Thebault, head of quantitative sales trading, at Global Equities in Paris.

The Fed, under pressure to revive the lagging economy, committed to buy $600 billion in government bonds and said it could adjust purchases depending on the strength of the recovery.

The Fed’s move to buy more Treasuries pushed U.S. yields lower and sent the dollar sinking to a more than nine-month trough against the euro, and prompted investors to seek returns elsewhere.

The VDAX-NEW volatility index (.V1XI: ), one of Europe’s main barometers of investor anxiety, dropped 13 percent to hit a near two-week low, signaling a sharp jump in investors’ appetite for risky assets.

Thursday’s stock rally was paced by mining shares climbing along with dollar-denominated commodity prices. Xstrata (XTA.L: ) soared 7.1 percent, BHP Billiton (BLT.L: ) surged 6.6 percent, and Total (TOTF.PA: ) gained 2.6 percent.

“The stronger euro brings more foreign investors into euro zone stocks, which could help regional indexes catch up with performances seen on Wall Street and in London and Frankfurt so far this year,” Thebault said.

“But on the other hand, investors will start cashing in profits made on stocks of big exporters. With the euro above $1.35-$1.38, firms such as EADS are feeling the sting of a strong currency.”

EADS (EAD.PA: ) dropped 4.1 percent and Rolls-Royce (RR.L: ) fell 5 percent after Qantas Airways (QAN.AX: ) suspended all Airbus A380 flights following an incident of engine failure on one plane in Singapore. Traders also mentioned the euro strength weighing on EADS.

Around Europe, UK’s FTSE 100 index (.FTSE: ) gained 2 percent, Germany’s DAX index (.GDAXI: ) rose 1.8 percent, and France’s CAC 40 (.FCHI: ) added 1.9 percent.

So far this year, the FTSEurofirst 300 (.FTEU3: ) index is up 5.9 percent, while the FTSE 100 is up 8.3 percent, the DAX 13 percent is higher, while the CAC is down 0.5 percent and Spain’s IBEX (.IBEX: ) is 11 percent lower.

Investors’ mood was also brightened on Thursday by strong results from bellwethers Unilever (ULVR.L: ) and BNP Paribas (BNPP.PA: ), rising 6.3 percent and 3.7 percent respectively.

France’s biggest listed bank pleased investors by posting forecast-beating third-quarter results and ruling out a capital increase to meet tougher industry rules, while Unilever, the Anglo-Dutch consumer goods maker, surprised investors with a rise in third-quarter profit (Read more your timing to make a profit.) margins.

(Reporting by Blaise Robinson; Editing by Jon Loades-Carter)

Europe stocks rally as Fed move lifts risk appetite