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Europe Stocks Post Best Week Since April on Economic Data

(Corrects size of Stoxx 600 rally in third paragraph of story published Sept. 6.)

European stocks posted their biggest weekly advance in more than four months as U.S. unemployment remained at a four-year low and manufacturing growth in the world’s two largest economies beat projections.

Nokia Oyj (NOK1V) surged 41 percent this week after Microsoft Corp. agreed to buy its handset unit for 5.44 billion euros ($7.2 billion) and brokers upgraded their ratings on the shares. Alcatel-Lucent (ALU) SA rose 22 percent amid speculation Nokia could bid for its wireless business. Ryanair Holdings Plc (RYA) slumped 8 percent after saying full-year profit will probably be at the lower end of its forecast.

The Stoxx Europe 600 Index gained 3 percent to 306.10 this week, the best weekly performance since April 26. The benchmark slipped 0.8 percent in August, the second monthly loss in more than a year. It has still rallied 11 percent from this year’s low on June 24 as the European Central Bank and the Bank of England pledged to keep interest rates low.

“All the latest data coming out of the U.S. is quite encouraging,” David Hussey, who helps oversee $247 billion as head of European equities at Manulife Asset Management, said by phone from London. “The global economy is slowly healing, though we’re still nowhere near being given the all clear. The nub of it is whether the Fed will allow rates to appreciate more slowly, but the place to be will be in equities.”

The VStoxx Index, a gauge of expected volatility in euro-area stocks based on options prices, slipped 14 percent this week. National benchmark indexes advanced in all of the 18 western European markets except Iceland. Germany’s DAX and the U.K.’s FTSE 100 added 2.1 percent, while France’s CAC 40 gained 2.9 percent.

U.S. Jobs

In the U.S., Labor Department figures showed the unemployment rate unexpectedly fell to 7.3 percent in August, the lowest since December 2008, even as employers added fewer workers than economists had projected.

The Federal Open Market Committee meets on Sept. 17-18, when policy makers will assess whether economic growth and the labor market are strong enough to warrant slowing the pace of its stimulus program. Sixty-five percent of economists surveyed by Bloomberg Aug. 9-13 predicted the pace of bond purchases would be scaled back at the September meeting.

Central banks in Europe and the U.K. held benchmark interest rates at record lows this week and President Mario Draghi reiterated that the ECB would keep its policy accommodative for an extended period.

U.S. manufacturing in August climbed to its highest level since June 2011, while services industries expanded at the fastest pace since December 2005, according to separate reports from the Institute for Supply Management. Both readings exceeded economists’ estimates.

China Manufacturing

In China, an official measure of manufacturing activity rose to 51 in August from 50.3 in July, beating the median economist projection. A private index compiled by Markit Economics and HSBC Holdings Plc showed output expanded the most in three years last month.

A gauge of mining stocks advanced for the first week in three, posting the biggest gain of the 19 industry groups on the Stoxx 600 as economic reports pointed to increasing demand from China. Rio Tinto Group rose 6.3 percent, while ArcelorMittal SA climbed 7.2 percent. Glencore Xstrata Plc added 4.3 percent.

Nokia surged 41 percent, the biggest jump since Bloomberg began compiling the data in 1991. The deal with Microsoft includes 3.79 billion euros for the devices unit and 1.65 billion euros for patents, the companies said on Sept. 2. Brokers at Deutsche Bank AG, Credit Suisse Group AG, Bank of America Corp.’s Merrill Lynch unit and Exane BNP Paribas upgraded their ratings on the stock after the deal.

Alcatel Rallies

Alcatel-Lucent rose 22 percent for its largest weekly rally in 2 1/2 years. Analysts at JPMorgan Chase & Co. and Natixis said speculation that Nokia could bid for Alcatel-Lucent’s wireless unit drove shares higher. Chief Executive Officer Michel Combes has pledged to sell assets to raise 1 billion euros and reduce expenses at the Paris-based company.

Telecom Italia SpA jumped 15 percent. Italy’s largest phone company may overhaul its ownership structure as controlling shareholders are allowed to exercise a right to end a six-year partnership this month, according to two people familiar with the matter. The company has renewed contact with Egyptian billionaire Naguib Sawiris, whose bid to acquire a stake was rejected last year, said the people, who asked not to be identified discussing confidential deliberations.

Dufry AG gained 6.6 percent, its best week in more than a year after the duty-free retailer said it won contracts to run shops in Brazilian airports.

Ryanair Slides

Ryanair (RYA) slipped 8 percent in London. The low-cost carrier said that full-year net income may fall short of its forecast range of 570 million euros to 600 million euros as a heat wave prompted people to holiday at home and increased competition depressed ticket prices.

ProSiebenSat.1 Media AG lost 4.1 percent after investors Telegraaf Media Groep NV, KKR & Co. and Permira Advisers LLP sold stakes in the German broadcaster. The stock has still rallied 44 percent so far this year.

Suedzucker AG slid 10 percent after Exane predicted that the end of the “highly regulated” European sugar market will cut earnings at the continent’s biggest supplier of the dietary staple almost in half by 2018. The European Union will abolish the quota system that supports prices by 2017 as part of a wider reform of the common agricultural policy.

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net

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

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