Nov. 7 (Bloomberg) -- European stocks advanced, trimming this week's decline, as speculation the Federal Reserve may lower interest rates offset concern about rising U.S. unemployment, while higher oil buoyed energy producers.

BP Plc, Europe's second-largest oil company, and Tullow Oil Plc rallied more than 4 percent. British Airways Plc, Europe's third-largest carrier, surged 12 percent after raising its revenue forecast and pledging to trim flights. Munich Re jumped 6.9 percent as the world's biggest reinsurer kept its dividend and earnings-per-share targets.

Europe's Dow Jones Stoxx 600 Index added 1.9 percent to 219.60 in London, trimming this week's drop to 1.1 percent. Central banks from London and Frankfurt to Washington and Tokyo have cut rates in the past month to shore up the banking system in the worst financial crisis since the Great Depression.

``The stock market has already integrated the bad news and now is playing the scenario of possible support'' for the economy, said Kilian de Kertanguy, a fund manager at Cholet- Dupont Gestion in Paris, which oversees $2.3 billion. ``The market is waiting for the Fed to cut interest rates.''

The Labor Department said the jobless rate climbed more than forecast in October to the highest level since 1994 and the payrolls dropped by 240,000 workers. The data shows the economic slump inherited by Barack Obama will last well into his first year as president.

National Markets

National benchmarks advanced in all 18 western European markets except Luxembourg. The U.K.'s FTSE 100 gained 2.2 percent with Royal Dutch Shell Plc and Rio Tinto Group climbing. Germany's DAX added 2.6 percent, while France's CAC 40 increased 2.4 percent.

The Stoxx 600 has declined 40 percent in 2008, headed for its worst year on record. More than $27 trillion has been erased from the value of global equity markets as credit losses and writedowns topped $690 billion.

The worst banking crisis in almost a century pushed the Bank of England to slash its key rate 1.5 percentage points yesterday, while the European Central Bank cut its benchmark rate by half a point. Denmark and Switzerland also lowered rates yesterday.

``There will be more rate cuts in the U.S. and Europe before the end of the year, and that's favorable,'' said Jerome Forneris, a fund manager at Banque Martin Maurel in Marseille, France, who helps oversee $10 billion.

The Bank of Korea cut interest rates today for the third time in four weeks and signaled it's ready to act again to prevent the economy from sinking into recession.

Four-Year Low

Money-market rates extended declines, the latest evidence the paralysis in credit markets is easing. The London interbank offered rate, or Libor, that banks charge each other for three- month loans in dollars dropped 10 basis points to 2.29 percent, the lowest level in four years.

The TED spread, which measures the difference between the cost of three-month loans and the yield on U.S. Treasury bills of the same maturity, dropped below 200 basis points for the first time since Sept. 12, the last day before the collapse of Lehman Brothers Holdings Inc.

BP climbed 4.5 percent to 515 pence, and Tullow Oil, a U.K.-based explorer in Africa and Asia, jumped 5.1 percent to 563 pence. Shell, Europe's biggest oil company, added 2.3 percent to 1,679 pence.

Crude oil for December delivery rose as much as $2.05, or 3.4 percent, to $62.82 a barrel in New York.

Takeover Cleared

Imperial Energy Plc, the U.K.-based explorer developing deposits in Siberia, jumped 21 percent to 1,065 pence after Russia's antitrust agency approved its 1.4 billion-pound ($2.2 billion) takeover by India's Oil & Natural Gas Corp.

British Airways rallied 12 percent to 146 pence after boosting its revenue forecast and saying it will trim summer flights and complete a job-cutting program.

The London-based carrier raised its forecast for full-year revenue growth to 4 percent from 3 percent and said it will reduce its summer schedule by 1 percent to save money as traffic declines.

Munich Re climbed 6.9 percent to 102.97 euros. The company said it will continue to buy back shares as planned and confirmed a target to increase earnings per share by an average of 10 percent until 2010 to at least 18 euros.

The company reiterated a statement from Aug. 6 that it plans to pay a dividend of at least 5.50 euros per share this year, matching the payout for 2007.

Alleviating Debt

Investors in U.K. equities should increase holdings in retailers and homebuilders, because yesterday's larger-than- expected interest-rate cut from the Bank of England will alleviate households' debt, Cazenove said.

Taylor Wimpey Plc, the U.K.'s largest homebuilder, gained 3.7 percent to 14 pence. Marks & Spencer Group Plc, Britain's largest clothing retailer, advanced 3 percent to 260.25 pence.

Sanford C. Bernstein raised its recommendation on shares of Marks & Spencer to ``outperform'' from ``market-perform,'' saying the rate cut could spark buying in British retail stocks.

BHP Billiton Ltd., the world's biggest mining company, advanced 4.8 percent to 1,015 pence. Rio Tinto Group, the world's second-biggest exporter of iron ore, rose 4.5 percent to 2,618 pence.

Gold climbed in New York, heading for its first weekly gain in four, as a decline in the dollar boosted demand from investors seeking an alternative investment. Other precious metals including platinum also rose.

Lafarge SA lost 2.9 percent to 45.50 euros. The world's biggest cement producer abandoned profit targets for 2010 and will scale back expansion and sell more assets to meet the terms of debt agreements.

Spending at the Paris-based company will be limited to about 2 billion euros next year and an asset-sale program will be extended beyond the 1 billion euros initially, it said.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

Last Updated: November 7, 2008 13:09 EST