European stocks climbed, with the Stoxx Europe 600 Index extending a five-month high, amid speculation that China’s slowest economic growth in more than two years will lead to easier monetary policy.
Daimler AG (DAI) led carmakers higher, rallying 3.8 percent. Rio Tinto Group advanced 2.9 percent after the world’s third-largest mining company said fourth-quarter iron ore production rose to a record, driven by expansion at its mines and ports in Australia’s Pilbara region.
The Stoxx 600 added 0.9 percent to 253.27 at the close, rallying to its highest level since Aug. 2. The gauge closed above its 200-day moving average yesterday for the first time since July.
“The reverse repo announced today is another step along the policy-easing path initiated a few months ago, which we would expect to continue through 2012, and this is likely to support asset prices,” said Gerard Lane, an equity strategist at Shore Capital in Liverpool, England.
National benchmark indexes climbed in every western- European market except Luxembourg and Iceland. The U.K.’s FTSE 100 Index rose 0.7 percent, Germany’s DAX Index advanced 1.8 percent and France’s CAC 40 Index jumped 1.4 percent.
Gross domestic product in China, the world’s second-biggest economy, increased 8.9 percent in the fourth quarter from a year earlier, the statistics bureau said in Beijing. The economy expanded at the slowest pace in 10 quarters, increasing pressure on Premier Wen Jiabao to ease monetary policy. Even so, the pace of growth beat the median of 26 economist estimates in a Bloomberg survey of 8.7 percent.
The People’s Bank of China said it injected 169 billion yuan ($26.8 billion) into the financial market through 14-day reverse-repurchase operations at 5.47 percent, according to a statement posted on the bank’s website today.
“The positive growth headline and sticky inflation pressures seemed enough to assure the People’s Bank of China to choose temporary liquidity injection, via reverse repo, over a more permanent tool of required-reserve ratio cuts before the Chinese New Year,” said Wei Yao, the Hong-Kong based economist for China at Societe Generale SA. The economist said today’s reverse-repurchase operation was equivalent to a temporary cut of 20 basis points in the required-reserve ratio.
The Stoxx 600 has climbed 3.6 percent in 2012, beginning to recover from an 11 percent slump last year when borrowing costs in Italy and Spain reached euro-era records and governments struggled to tackle waning growth.
EFSF Rating Downgrade
The European Financial Stability Facility, the euro area’s bailout fund, lost its top credit rating yesterday at Standard & Poor’s following downgrades of France and Austria on Jan. 13. The rating company said on Dec. 6 that the loss of an AAA rating by any of the EFSF’s guarantors may lead to a downgrade. The EFSF, designed to fund rescue packages for Greece, Ireland and Portugal partially with bond sales, owed its AAA rating to guarantees from its sponsoring nations.
Italian Prime Minister Mario Monti’s request for German help to support Italy’s economy reinforces the case for quantitative easing from the European Central Bank, according to Paul Mortimer-Lee, the global head of market economics at BNP Paribas SA in London. Monti said it was in Germany’s “enlightened self-interest” to do more to help bring down borrowing costs for his country and other debt-stricken nations, the Financial Times reported, citing an interview.
German Investor Confidence
A report today showed that German investor confidence jumped the most on record in January. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, surged to minus 21.6 from minus 53.8 in December, the biggest gain since the index started in December 1991. Economists had forecast a reading of minus 49.4, the median of 39 estimates in a Bloomberg News survey showed.
Rio Tinto advanced 2.9 percent to 3,694 pence after saying that fourth-quarter iron ore production rose to 51.2 million metric tons in the three months ended Dec. 31 from 50.1 million tons a year earlier. That compared with a 52 million-ton estimate from RBC Capital Markets and 49.6 million tons from Credit Suisse Group AG.
Royal Bank of Scotland Group Plc added 1.8 percent to 24.85 pence as a group led by Sumitomo Mitsui Financial Group Inc. agreed to buy RBS’s aviation division for about $7.3 billion, the lender’s biggest disposal since its U.K. government bailout in 2008.
Afren Shares Soar
Afren Plc (AFR) surged 13 percent to 130.5 pence. The company said it discovered oil and gas at the Okoro East exploration well off southeast Nigeria. The well encountered 549 feet of vertical oil reservoir and 41 feet of gas, Afren said.
IMI Plc (IMI) advanced 1.1 percent to 879 pence, Smiths Group Plc (SMIN) added 2.4 percent to 960 pence and Metso OYJ (MEO1V) climbed 2.8 percent to 31.19 euros after Exane BNP Paribas SA upgraded the shares to “outperform” as it raised estimates for the capital-goods industry, citing the stabilization of leading indicators.
Svenska Cellulosa AB (SCAA) rallied 9.8 percent to 114.20 kronor as DS Smith Plc agreed to buy a packaging business from the Swedish tissue maker for 1.6 billion euros ($2 billion) to become Europe’s largest supplier of recycled cartons for consumer goods.
Eni, Essar Energy
Eni SpA (ENI) rose 1.7 percent to 16.67 euros. The Italian oil company plans to invest more than $600 million in Tunisia in 2012, state-run news agency TAP said, citing the company’s deputy chairman, Franco Polo.
Essar Energy Plc (ESSR) plunged 26 percent to 127 pence, its biggest drop since May 2010 and the largest decline on the Stoxx 600 (SXXP), after India’s Supreme Court set aside an earlier judgment allowing the company’s subsidiary, Essar Oil Ltd., to defer payment of sales tax under an incentive program. Sales tax collected to date totals $1.25 billion, according to a statement from the company.
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