European stocks surged the most in six months after the European Central Bank held its benchmark interest rate at a record low and said it’s ready to act if necessary as the growth outlook dims.
Diageo Plc, the maker of Johnnie Walker, J&B and Buchanan’s Scotch whiskys, climbed 4.3 percent after saying it will invest 1 billion pounds ($1.54 billion) in production. Petropavlovsk Plc (POG) gained 9.7 percent after UBS (UBSN) AG recommended increasing holdings of the stock. UBS and Credit Suisse Group AG (CSGN), Switzerland’s largest lenders, also advanced.
The Stoxx Europe 600 Index (SXXP) added 2.3 percent to 239.95 at the close of trade, the biggest gain since Nov. 30. The gauge has declined 12 percent from its 2012 high on March 16 amid growing concern that Greece will be forced to leave the euro currency union.
“While not cutting rates or setting up a new bazooka, the ECB keeps the door open for further measures if warranted, confirming what investors consider the most likely scenario,” said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen, where he helps oversee $55 billion. “The bank is keeping its gunpowder dry for now and sustains the pressure on euro-zone politicians.”
ECB official today kept the benchmark interest rate at a record low of 1 percent, as predicted by 49 of 60 economists surveyed by Bloomberg News. Ten forecast a quarter-point reduction and one a half-point cut.
National benchmark indexes climbed in all 17 western European markets that were open. Germany’s DAX rose 2.1 percent, while the U.K.’s FTSE 100 gained 2.4 percent in its first day of trading this week after a two-day holiday for the royal jubilee. France’s CAC 40 also rallied 2.4 percent.
ECB President Mario Draghi said officials are ready to add more stimulus to the euro region’s economy if necessary, while damping expectations that another round of three-year funding for banks is imminent.
“We monitor all developments closely and we stand ready to act” as the economy faces “increased downside risks,” Draghi told reporters in Frankfurt today.
“Investors are weighing Draghi’s warning of economic risks against the chance of another round of monetary easing,” said Graham Bishop, an equity strategist at Exane BNP Paribas in London. “Though judging any such intervention is dependent on whether conditions get worse before they get better.”
Spanish Credit Line
Spain may receive a precautionary credit line from the European Financial Stability Facility, Germany’s Die Welt newspaper reported, citing unidentified people familiar with talks about the possible option.
In the U.S., the Federal Reserve issues its Beige Book survey of business conditions in 12 national districts, two weeks before the Federal Open Market Committee meets to set monetary policy. The U.S. economy grew at a “modest to moderate” pace, according to the April survey.
The euro-area economy stalled in the first quarter as companies cut spending to weather the sovereign-debt crisis, offsetting a gain in exports. Gross domestic product in the 17- nation euro area was unchanged from the fourth quarter, when it declined 0.3 percent, the European Union’s statistics office in Luxembourg said today, confirming an initial estimate published on May 15.
German industrial output fell more than economists forecast in April and Spanish production had the biggest drop in more than two years, adding to signs of a deepening economic slump across the euro area.
German production declined 2.2 percent from March, the Economy Ministry in Berlin said today. Economists had forecast a drop of 1 percent, according to the median of 37 estimates in a Bloomberg News survey. In Spain, output fell 8.3 percent from a year earlier, when adjusted for work days, a separate report showed.
Diageo (DGE) rose 4.3 percent to 1,581 pence as the company said it plans to invest in the production of Scotch whisky, including expanding some existing distilleries.
Petropavlovsk climbed 9.7 percent to 425.6 pence after UBS recommended clients to increase holdings of the stock following a recent selloff.
UBS and Credit Suisse added 4.2 percent to 11.15 Swiss francs, and 3.3 percent to 19.10 francs, respectively. A gauge of European banks made the biggest contribution to the Stoxx 600’s advance.
A measure of mining companies climbed the most of the industry groups on the Stoxx 600 after copper rose in London. Copper miners Kazakhmys Plc (KAZ) and Vedanta Resources Plc (VED) advanced 7.4 percent to 714.5 pence, and 9.1 percent to 963.5 pence, respectively.
Lloyds Banking Group Plc (LLOY) rose 5.2 percent to 27.05 pence after agreeing to sell 809 million pounds of Australian corporate real estate loans to a Morgan Stanley and Blackstone Group LP joint venture for about 388 million pounds in cash.
The London-based lender said it would use the proceeds to repay debt. “This transaction further de-risks the Australian business,” removing 92 percent of the non-performing real- estate loans, Dave Smith, chief executive officer of Lloyds International Pty Ltd., said in the statement.
Barclay’s Plc (BARC) gained 8.2 percent to 187.8 pence after Sanford C. Bernstein & Co. said impairments in the loan books of U.K. lenders are stabilizing.
Premier Oil Plc (PMO) jumped 7.4 percent to 353.2 pence after the British explorer said it encountered oil in its 50 percent-owned Carnaby 28/09-5A well in the North Sea. Cairn Energy Plc (CNE), which owns 15 percent of the Carnaby well, rose 5 percent to 289.7 pence.
Royal Ahold NV paced declining shares, falling 4.2 percent to 9.18 euros after the owner of Stop & Shop grocery stores reported first-quarter earnings that missed estimates.
Net income declined to 282 million euros ($352 million) from 291 million euros a year earlier. Analysts expected profit of 304 million euros, according to the average of nine estimates compiled by Bloomberg.
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