European stocks climbed from a two- year low, snapping a seven-day slump in the benchmark Stoxx Europe 600 Index, amid speculation the Federal Reserve will act to restore confidence in the markets.
Basic-resource stocks rebounded from an 11-day slide, led by gains at Antofagasta Plc. (ANTO) Thomas Cook Group Plc (TCG), Europe’s second-largest tour operator, surged 17 percent. RWE AG (RWE), Germany’s second-biggest power company, led utilities lower after profit fell.
The Stoxx 600 advanced 1.4 percent to 232.2 at the 4:30 p.m. close in London, having earlier tumbled 5.1 percent. The gauge has still plunged 20 percent from this year’s high in February amid mounting speculation that Europe will fail to contain its sovereign-debt crisis and concern that the U.S. recovery is faltering.
The Fed will “hint that we’ll get help for the economy,” James Bevan, London-based chief investment officer at CCLA Investments, said in an interview on Bloomberg Television. “If I look at the fundamental free cash flows that many companies are giving, there is outstanding value.”
Fed policy makers are holding a one-day meeting today as last week’s Standard & Poor’s downgrade of the U.S. credit rating fuels concern about the world’s largest economy. Speculation has grown that the Fed will initiate a third round of emergency stimulus measures, known as QE3, to prop up growth. A report today showed China’s inflation accelerated to the fastest pace in three years in July, limiting the scope for monetary easing as risks to the global economy mount.
“We see equity markets pricing in double-dip risk until just before the Fed moves with its possible QE3 policy response in the week of Aug. 26,” Todd Martin, a Hong Kong-based equity strategist at Societe Generale SA, wrote in a report.
The Stoxx 600 has rallied 44 percent since March 2009 when governments and central banks around the world enacted emergency stimulus measures to boost the economy. The valuation of the Stoxx 600 fell to 9.3 times its companies’ forecast earnings yesterday, below the 12.2 times average multiple during the past five years, according to data compiled by Bloomberg. That was the cheapest since the bull market began in March 2009.
National benchmark indexes rose in 13 of the 18 western European markets. The U.K.’s FTSE 100 climbed 1.9 percent and France’s CAC 40 increased 1.6 percent. Germany’s DAX Index slipped 0.1 percent.
The VStoxx Index (V2X), which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, gained 2.4 percent to 46.4, its highest level since May 2010. The options gauge has advanced for 10 days in a row, the longest stretch of gains on record.
“Sentiment is already pretty battered,” George Godber, who manages 150 million pounds ($245 million) at Matterley LLP, said in a Bloomberg Television interview in London. “The fears of the U.S. going into recession have now passed and we’ve priced in a double dip.”
Antofagasta, the copper producer controlled by Chile’s Luksic family, rose 6.1 percent to 1,205 pence, ending seven days of losses. Xstrata Plc (XTA), the largest exporter of power- station coal, added 7.4 percent to 1,042 pence. Rio Tinto Group, the second-biggest mining company, increased 4.7 percent to 3,548 pence. A gauge of basic-resource shares in the Stoxx 600 gained 3 percent, the most since December.
Thomas Cook surged 17 percent to 53.35 pence, rebounding from yesterday’s 16 percent drop. Meyer Burger Technology AG (MBTN), the biggest producer of solar-panel manufacturing equipment, jumped 15 percent to 26.85 Swiss francs, snapping an 11-day losing streak in which the stock slid 30 percent.
Bayerische Motoren Werke AG (BMW) led gains in the Euro Stoxx 50 Index, advancing 6.3 percent to 58.63 euros.
RWE tumbled 6.3 percent to 28.75 euros, the lowest since 2003. The company said first-half profit dropped after cutting full-year earnings targets yesterday because of the costs of phasing out nuclear power stations. Larger rival EON AG lost 5.9 percent to 15.53 euros.
Yara International ASA (YAR), the world’s biggest publicly traded nitrogen-fertilizer maker, slumped 3.7 percent to 243.40 kroner as BofA Merrill Lynch Global Research downgraded the shares to “underperform” from “neutral.”
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