Nov. 3 (Bloomberg) -- European stocks advanced for a fifth day, the longest stretch of gains in a year, as declining money- market rates overshadowed evidence the global economy is slipping into a recession.

ING Groep NV, the Netherlands' biggest financial-services provider, added 5.2 percent, and Swiss Reinsurance Co., the world's second-largest reinsurer, climbed 6.3 percent as a leading money-market indicator slid to the lowest level since the collapse of Lehman Brothers Holdings Inc. HBOS Plc rallied 6.1 percent on speculation the mortgage lender may receive a rival bid to Lloyds TSB Group Plc's offer.

The Dow Jones Stoxx 600 Index rose 0.6 percent to 223.38, marking the longest winning streak since October 2007.

``You are seeing some signs of the stress indicators, or interbank lending, are reducing,'' said Andrew Bell, head of research and strategy at Rensburg Sheppards Plc. ``Clearly liquidity is being provided from central banks and governments to show that the banks can continue to function. I don't think the bank bailouts are over, but what you have now is a belief that sufficient capital will be found to plug the holes.''

National benchmark indexes rose in all 18 western European markets except Ireland. The U.K.'s FTSE 100 climbed 1.5 percent and France's CAC 40 gained 1.2 percent. Germany's DAX increased 0.8 percent.

Investors looked past reports today that showed manufacturing in the U.S. contracted in October at the fastest pace since 1982 and factory output in the U.K. shrank for a sixth straight month. The European Commission said the region's economy probably entered a recession in the third quarter and trimmed its growth forecast for this year to 1.2 percent from 1.3 percent.

Worst Year

Europe's Stoxx 600 climbed 12 percent last week, the biggest weekly gain since September 2001, as central banks from the U.S. to Japan cut borrowing costs to revive economic growth.

Even after last week's rally, European stocks are headed for their worst year on record as a jump in U.S. mortgage defaults saddled global banks with more than $684 billion of losses and caused credit markets to lock up. The Stoxx 600 has tumbled 39 percent in 2008 and reached a five-year low on Oct. 27 when the gauge traded at 7.9 times reported earnings of the companies in the index, the cheapest level since at least January 2002, according to data compiled by Bloomberg.

Money Rates Fall

ING gained 5.2 percent to 7.61 euros, and Swiss Re added 6.3 percent to 50.75 francs. Allianz SE, Europe's largest insurer, climbed 4.2 percent to 60.45 euros.

The London interbank offered rate, or Libor, that banks charge for three-month loans in dollars dropped 17 basis points to 2.86 percent, the lowest level since the collapse of Lehman on Sept. 15.

The Libor-OIS spread, which former Federal Reserve Chairman Alan Greenspan said in June should serve as a measure for determining when markets have returned to normal, fell 15 basis points to 224 basis points today, compared with 364 basis points on Oct. 10. The spread was 87 basis points on Sept. 12, the last working day before Lehman filed for bankruptcy.

Money-market rates also fell in Asia. The declines signals as much as $3 trillion of emergency funds provided by governments to alleviate the credit crisis may be easing interbank lending.

Taylor Wimpey Plc, the U.K.'s largest homebuilder, rallied 38 percent to 13.75 pence as investors bought shares to close short positions, betting the stock will benefit from an interest rate cut.

Rate Outlook

``What we have seen over the last week is that there has been some short closing and also deeply cyclical, highly volatile stocks that have been hammered of late bounce back as the market has bounced back,'' Panmure Gordon & Co. analyst Mark Hughes said by telephone.

European Central Bank policy makers meet Nov. 6, when they will probably reduce the region's main refinancing rate a half point to 3.25 percent, a Bloomberg survey of economists showed. The Bank of England will also announce a cut in borrowing costs on the same day to 4 percent, a separate survey indicated.

HBOS rose 6.1 percent to 105.4 pence. Scottish financier Jim Spowart contacted Scottish Secretary Jim Murphy this past week about ``another potential bid,'' the Scottish Office said in a statement in London. For now, though, ``there is only one bid,'' it said. HBOS spokesman Shane O'Riordain declined to comment.

Edinburgh-based HBOS agreed to be bought in September after its shares plunged amid concerns with the company's access to cash as the credit crunch discouraged loans between banks.

Lloyds TSB agreed to buy HBOS in a government-assisted rescue.

Volkswagen AG fell 21 percent to 393 euros after Deutsche Boerse AG limited the stock's weighting in the DAX Index to 10 percent following the close on Oct. 31, and said that from today it may at any time remove a DAX stock whose weighting exceeds 10 percent and whose share price over the preceding 30 trading days had annualized volatility of more than 250 percent. The carmaker currently comprises 8.5 percent of the gauge.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

Last Updated: November 3, 2008 11:59 EST