Europe Stocks Post Weekly Gains as Banks, Airlines Rally

European stocks posted the first full-weekly gain of 2014, as data showed U.S. and German unemployment fell and Ireland returned to the bond market after completing a bailout program.

A gauge of lenders posted its biggest weekly advance in more than eight months as Ireland’s bond sale sent European borrowing costs lower, with Bank of Ireland soaring 19 percent in Dublin. Air France-KLM (AF) Group jumped 16 percent and Deutsche Lufthansa AG added 13 percent after saying passenger traffic rose in December. Wm Morrison Supermarkets Plc completed its worst week since May 2010 after forecasting that annual profit will be at the lower end of analysts’ estimates.

The Stoxx 600 climbed 0.7 percent to 329.95, its highest level since May 2008, in its first full week of 2014. The gauge rose 17 percent in 2013, its best year since 2009, as the European Central Bank said it would keep interest rates low for an extended period and investors bet that the U.S. economic recovery is strong enough to withstand a reduction in Federal Reserve stimulus.

“The periphery started 2014 very well, showing appetite for risk as Ireland returned to the market,” said Michael Kapler, an equities portfolio manager at Mittelbrandenburgische Sparkasse in Potsdam, Germany. “In an environment of low interest rates at least in Europe, supportive central banks like the ECB, and better economic data coming out of Europe and the U.S., there’s a good chance markets will continue to go higher in the next few months.”

Irish Bonds

Ireland returned to debt markets with the sale of a 10-year bond after completing its international bailout last month. The nation raised 3.75 billion euros ($5.1 billion) in the Jan. 7 auction, exceeding its minimum target. Portugal followed two days later with a 3.25 billion-euro five-year bond sale that attracted 11 billion euros of bids.

Data this week showed unemployment in Germany, Europe’s largest economy, fell in December for the first time in five months, while the adjusted jobless rate remained unchanged at 6.9 percent. In the U.S., the unemployment rate fell to 6.7 percent, the lowest since October 2008, even as payrolls in December increased at the slowest pace since January 2011.

ECB President Mario Draghi on Jan. 9 reiterated a pledge to keep interest rates low as he warned that it’s too soon to say the euro area is out of danger.

“The Governing Council strongly emphasizes that it will maintain an accommodative stance of monetary policy for as long as necessary,” Draghi told reporters in Frankfurt after the ECB left the main refinancing rate at 0.25 percent.

National Benchmarks

National benchmark indexes rose in all of the 18 western-European markets except Iceland this week. The U.K.’s FTSE 100 (UKX) gained 0.1 percent. Germany’s DAX advanced 0.4 percent, while France’s CAC 40 (CAC) increased 0.1 percent. Spain’s IBEX 35 rallied 5 percent to its highest level since July 2011.

The average daily volume this week on the Stoxx 600, across all exchanges, was 15 percent higher than the average of the past 12 months, according to data compiled by Bloomberg.

The Stoxx 600 Banks Index posted the biggest increase of the 19 industry groups in the Stoxx 600, rising 4.7 percent, as benchmark 10-year bond yields for Portugal and Spain fell for a second week. Greek borrowing costs tumbled to near their lowest since May 2010.

Portugal’s Banco Espirito Santo SA added 6.6 percent for its fourth weekly advance, and Banco Comercial Portugues SA increased 9.1 percent. Banco BPI SA rose 14 percent. In Madrid, Banco Popular Espanol SA climbed 20 percent, while CaixaBank SA jumped 13 percent.

Airlines Advance

Air France-KLM increased 16 percent, its biggest weekly gain since June 2012. Passenger traffic, or the number of people carried times the distance flown, rose 3.2 percent in December and ticket pricing was “resilient,” the biggest European airline said.

Lufthansa jumped 13 percent after the German carrier predicted costs per passenger will drop 2 percent this year, while forecasting fuel expenses of 6.9 billion euros. That’s 200 million euros less than the 2013 estimate. Passenger traffic increased 1.7 percent in December.

Celesio AG advanced 5.7 percent as McKesson Corp. raised its bid for the German drug distributor after shareholder Elliott Management Corp. said the original offer was too low. McKesson will offer 23.50 euros a share, up from 23 euros previously, valuing the tender offer at about 4 billion euros.

TGS Nopec Geophysical Co. jumped 18 percent after Norway’s biggest surveyor of underwater oil and gas fields forecast 2013 revenue of about $882 million, compared with previous guidance of $810 million to $870 million.

Morrison Slides

Wm Morrison, which will report annual results on March 13, tumbled 8.6 percent. Full-year underlying operating profit will be near the lower-end of the 783 million-pound ($1.29 billion) to 853 million-pound range estimated by analysts, Morrison said, as comparable holiday sales fell 5.6 percent.

J Sainsbury Plc (SBRY) declined 7.5 percent. The grocer’s Chief Financial Officer John Rogers said that same-store sales for the financial year will rise less than 1 percent. That compared with his Nov. 13 prediction for growth of 1 percent to 1.5 percent.

Imperial Tobacco Group Plc retreated 5.2 percent, for its worst week in 16 months. British American Tobacco Plc slipped 3.6 percent.

China’s National Health & Family-Planning Commission has begun work on new rules to ban smoking in public places, the South China Morning Post reported this week. The newspaper cited Mao Qunan, a spokesman for the government’s health commission. China is the world’s largest market for cigarette makers.

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: Cecile Vannucci at cvannucci1@bloomberg.net

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