Dec. 2 (Bloomberg) -- European shares rose, with the Dow Jones Stoxx 600 Index rebounding from its biggest drop in six weeks, as speculation central banks will step up efforts to boost growth outweighed concern the recession will curb profit.

Allianz SE gained 4.9 percent as European producer prices dropped the most in 22 years in October, giving the European Central Bank more room to cut interest rates. Renault SA jumped 9.4 percent as Ford Motor Co. submitted its plan to Congress, saying it expects to break even or be profitable before taxes in 2011. Tesco Plc rallied 13 percent after the largest U.K. supermarket company reported better-than-expected sales.

The Stoxx 600 added 1.7 percent to 197.2 in London, following yesterday’s 6 percent drop that was triggered by manufacturing reports signaling the global economy is worsening. More than $32 trillion has been wiped off the value of global equities this year as countries from the U.K. and Germany to the U.S. slipped into recession.

“We will see further rate cuts from central banks as policy is going to have to be loosened,” said Graham Neale, managing director of Killik & Co. which has about $2.96 billion in assets under management. “We are not turning bullish on equities but there is certainly a case for adding to your exposure.”

National benchmarks increased in 14 of the 18 western European markets. The FTSE 100 added 1.4 percent. Germany’s DAX gained 3.1 percent, led by Bayerische Motoren Werke AG and Daimler AG. France’s CAC 40 rose 2.4 percent.

‘Best Potential’

JPMorgan Chase & Co. advised buying European stocks saying they offer “the best potential within a global portfolio.” Falling inflation will help consumers, central banks will have to respond to an economic contraction and valuations imply greater potential returns than in the U.S., according to their London-based head of European equity strategy Mislav Matejka.

The biggest drop in European producer prices since 1986 signaled inflation will slow further. Factory prices in Europe fell 0.8 percent from September, the European Union statistics office said today. The decline was due to a slump in oil prices and reduced the annual producer-price inflation rate to 6.3 percent from 7.9 percent.

The Stoxx 600 is valued at 8.1 times reported earnings of the companies in the index, according to data compiled by Bloomberg. That compares with 18 times profit for the Standard & Poor’s 500 Index, the data show.

Allianz, Europe’s largest insurer, climbed 4.9 percent to 63.80 euros. UBS AG, the biggest Swiss bank, jumped 3.6 percent to 13.76 francs.

Rate Outlook

Economists predict ECB policy makers will cut rates by a half percentage point this week. The Bank of England will probably lower rates by a 1 percentage point, according to a Bloomberg survey. Both central banks are scheduled to announce their decisions on Dec. 4.

Former Bank of England policy maker Willem Buiter said the U.K. central bank will weigh the risk of “a rout” in the pound when it cuts the benchmark rate. He forecast a 150 basis-point reduction.

Renault, France’s second-biggest automaker, climbed 9.4 percent to 17.48 euros. BMW, the world’s largest maker of luxury cars, added 4 percent to 19.66 euros. Daimler gained 3.1 percent to 23.57 euros.

Ford submitted its plan to Congress seeking a loan of as much as $9 billion, saying it doesn’t anticipate a “liquidity crisis” in 2009, barring a bankruptcy by a competitor or a more severe economic slump. Chief Executive Officer Alan Mulally said he would work for a $1 annual salary should Ford need to access the loan.

The U.S. government’s rescue of Citigroup Inc. and China’s efforts to bolster the economy with lower rates spurred a global rally in equities last week, sending the MSCI World Index up 12 percent, its biggest weekly increase on record.

Retailers

Tesco rose 13 percent to 325.4 pence. The company reported a 2 percent gain in same-store sales excluding gas, beating analyst estimates of a 1.6 percent climb. Tesco also said it plans to reduce capital expenditure next year to below 4 billion pounds ($5.95 billion).

William Morrison Supermarkets Plc added 2.4 percent to 243.5 pence. Metro AG, Germany’s largest retailer, climbed 3.4 percent to 23.97 euros.

British Airways Plc rallied 12 percent to 157.1 pence after the airline said it’s in talks with Qantas Airways Ltd. of Australia about a merger. A combination between Europe’s third- largest carrier and Qantas would involve a dual-listed company structure, London-based airline said in a statement. The U.K. carrier said it remains in merger discussions with Iberia Lineas Aereas de Espana SA of Spain.

“There is no guarantee that any transaction will be forthcoming and a further announcement will be made in due course, if appropriate,” British Airways said.

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

Last Updated: December 2, 2008 12:30 EST