European stocks rally on Obama, Fed relief

By Blaise Robinson

PARIS (BestGrowthStock) – European equities were up 1.3 percent in morning trade on Thursday, recovering from a one-week slide after U.S. President Barack Obama moderated his tone on bank restrictions in his State of the Union speech.

The pledge by the Federal Reserve to keep interest rates near zero for “an extended period” also lifted sentiment.

Banks, beaten down over the past week by worries over the White House’s plan to curb risk-taking by financial institutions, were among the top gainers on Thursday.

UBS rose 2.3 percent, Barclays added 3.7 percent and Societe Generale rose 1.9 percent.

In his speech to Congress, Obama reiterated the need for tough new rules for the financial sector but said he was “not interested in punishing banks.”

His comments lifted U.S. stock index futures as investors saw them as a slight retreat from fiery rhetoric when he unveiled the plan last week.

At 0945 GMT (4:45 a.m. EST), the FTSEurofirst 300 index of top European shares was up 1.3 percent at 1,026.54 points. The index had tumbled 5.2 percent over the past six sessions.

“The violence of the sell-off has been surprising, investors panicked. But I don’t think this has been a change in trend. Macro data is pointing into the other direction,” said Jacques Henry, analyst at Louis Capital Markets, in Paris.

“The big question remains: ‘How will central banks remove the quantitative easing?’ and with last night’s Fed comments, the issue has been pushed away. So, for now, loose monetary policy is good for the banks.”

On Wednesday, the Fed offered a guardedly upbeat view of the U.S. economy and renewed its pledge to keep interest rates near zero despite the objection of one policy maker.

In a sign that a recent rise in risk aversion was abating, the VDAX-NEW volatility index dropped 5.7 percent on Thursday. The lower the volatility index, which is based on sell and buy options on Frankfurt’s top-30 stocks, the higher is investor appetite for risky assets such as equities.

Miners, which also took a beating over the past week, regained ground on Thursday even though metal prices such as copper and aluminum eased on ongoing concerns over tougher monetary policy in China.

Eramet was up 3 percent, Lonmin up 2.7 percent and Xstrata 2.7 percent.

Around Europe, Britain’s FTSE 100 index was up 0.8 percent, Germany’s DAX index up 1.1 percent, and France’s CAC 40 up 1 percent.

So far this year, the FTSE 100 is down 2.9 percent, the DAX down 4.3 percent and the CAC down 3.6 percent.

German chipmaker Infineon added 5.7 percent after U.S. asset manager BlackRock increased its stake in the German company to 5.05 percent.

Tate & Lyle fell 3.1 percent as the British sugar and sweetener group warned of a dip in operating profit after lowering prices for sweetener and starches products for 2010.

Hennes & Mauritz surged 7.3 percent after the world’s third-biggest clothing retailer posted forecast-beating results and fueled hopes a tentative economic turnaround in Europe was finally starting to lift consumer spending.

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(Reporting by Blaise Robinson; Editing by Dan Lalor)

European stocks rally on Obama, Fed relief