European Stocks Advance as Investors Eye ECB Decision

European stocks rose to the highest in eight weeks as investors bet central banks will add to measures unveiled by the region’s governments to contain the sovereign-debt crisis and data from China and Japan fueled optimism Asia will drive global growth.

Invensys Plc (ISYS) advanced 1.4 percent after a report said China South Locomotive & Rolling Stock Corp. may make an offer. Aviva Plc, the U.K.’s second-biggest insurer, jumped 3.7 percent after it named a new chairman. Rhoen Klinikum AG (RHK) slumped 8.9 percent after Fresenius SE failed in its 3.1 billion-euro bid to buy the company.

The Stoxx Europe 600 Index (SXXP) climbed 1.5 percent to 254.82 at the close of trading, the highest since May 7. The gauge rallied 1.9 percent last week, trimming its second-quarter decline to 4.6 percent, as policy makers eased repayment rules for Spanish banks and relaxed conditions for possible aid to Italy. The actions prompted Morgan Stanley to upgrade the region’s stocks to neutral today.

“Investors will focus on the European Central Bank decision this week,” said Guillaume Chaloin, a fund manager at Meeschaert Asset Management in Paris, which oversees $2.5 billion in assets. “There is a rotation toward cyclical stocks, such as oil and technology, with the idea that if we’ve found a solution to the debt problem, there will be less negative impact on industries sensitive to the economy.”

The volume of shares changing hands on Stoxx 600 companies was 13 percent more than the average of the last 30 days, data compiled by Bloomberg showed.

National benchmark indexes advanced in all of the 18 western European markets except Iceland. France’s CAC 40 climbed 1.4 percent and the U.K.’s FTSE 100 added 1.3 percent. Germany’s DAX increased 1.2 percent.

Interest Rates

The ECB and the Bank of England announce interest-rate decisions on July 5. ECB officials will lower their benchmark rate by 25 basis points to a record low 0.75 percent, according to the median forecast in a Bloomberg survey of 57 economists. Five predict a cut of 50 basis points and 12 foresee no change.

“There still seems to be some positivity left over from Friday’s European summit announcement on bank bailouts,” David Jones, chief market strategist at IG Index in London, wrote. “With interest-rate decisions expected this week from the ECB and the Bank of England, hopes may be raised about the prospect of further quantitative easing.”

Morgan Stanley’s European Equity Strategy team including Graham Secker, Ronan Carr and Matthew Garman raised the region’s equities to neutral from underweight, saying last week’s decisions by euro-area leaders have lowered risk.

Home prices in China, Singapore and Australia rebounded as demand for property assets rose, boosted by low interest rates.

Asian Manufacturing

In China, the government’s Purchasing Managers’ Index fell to 50.2 in June from 50.4 in May, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing reported yesterday. That beat the 49.9 median estimate in survey of 24 economists.

A separate PMI, compiled by HSBC Holdings Plc and Market Economics, posted a final reading of 48.2 in June compared with 48.4 in May, according to figures released today.

In Japan, large manufacturers became less pessimistic as declines in commodity prices aided profitability, boosting the outlook for the world’s third-biggest economy.

The quarterly Tankan index of sentiment was minus 1 in June from minus 4 in March, the Bank of Japan said today in Tokyo. The median estimate of 19 economists surveyed by Bloomberg News called for a reading of minus 4. A negative number means pessimists outnumber optimists.

U.S. Economy

A U.S. report showed the Institute for Supply Management’s factory index fell to 49.7 in June from 53.5 a month earlier. The median forecast of economists surveyed by Bloomberg News called for a decline to 52. Readings less than 50 signal contraction.

Invensys, which makes software that runs the London Underground trains, gained 1.4 percent to 225.8 pence. China South Locomotive is in the early stages of planning a possible 2 billion-pound ($3.14 billion) takeover bid for the company, the Sunday Times reported, without saying where it got the information.

Aviva advanced 3.7 percent to 282.7 pence. John McFarlane is taking over the position of chairman from Colin M. Sharman, who is retiring, the company said.

Barclays Chairman

Barclays Plc (BARC) gained 3.4 percent to 168.4 pence after earlier falling as much as 3.8 percent. Chairman Marcus Agius resigned after the bank was fined a record 290 million pounds for trying to rig inter-bank lending rates. Agius, 65, will remain in post until his replacement is appointed. Michael Rake will become deputy chairman.

BNP Paribas SA (BNP), France’s largest bank, jumped 4.3 percent to 31.56 euros. CA Cheuvreux added the stock to its select list, upgrading its recommendation from outperform.

Credit Agricole SA (ACA) increased 6.9 percent to 3.71 euros, the highest since May 2. The lender is holding talks with brokers as it considers selling the unprofitable trading and research activities of its Cheuvreux unit, according to three people familiar with the plans. The stock rallied 8.7 percent on Friday.

Storebrand ASA (STB) climbed 3.5 percent to 24.01 kroner as Norway plans changes to occupational pension-product rules that could boost the earnings prospects of the country’s second- largest insurer.

Subsea Order

Subsea 7 SA (SUBC), an oilfield-services company, rallied 3.3 percent to 121 kroner. The company won a $400 million contract from BG Norge Ltd. for the development of the Knarr Field in the North Sea.

Rhoen Klinikum tumbled 8.9 percent to 17.20 euros after Fresenius’s bid to buy the hospital operator was foiled by rival Asklepios Kliniken GmbH, which took a 5 percent stake in Rhoen. About 84 percent of Rhoen Klinikum shares were tendered in the offer, Fresenius said after the market closed June 29. The 22.50-euro-a-share bid was contingent on garnering at least 90 percent of the stock.

Linde AG (LIN) fell 1.7 percent to 120.60 euros after agreeing to acquire Lincare Holdings Inc. for about $3.8 billion to add U.S. oxygen and respiratory therapy services delivered to the home.

Vestas Wind Systems A/S (VWS) fell 8.1 percent to 29.79 kroner. Sunday Times reported that the turbine maker is in talks with two banks about restructuring debts after drawing a 300 million- euro credit line. Mikkel Friis-Thomsen, a Vestas spokesman, declined to discuss details of the report.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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