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European Stocks Gain Amid Speculation of Central Bank Aid

European Stocks Gain on Speculation of Central Bank Assistance
Visitors pass through the main entrance of the London Stock Exchange Group Plc's headquarters as the company holds its first ever charity trading day in London. Photographer: Jason Alden/Bloomberg

European stocks rose for the fourth time in five days as speculation central banks will take further steps to support the economic recovery outweighed the biggest contraction in U.K. manufacturing for three years.

Next Plc jumped 6.5 percent as the retailer increased its annual profit forecast after reporting first-half sales that rose more than analysts estimated. Arkema SA climbed 5.7 percent as second-quarter earnings beat projections. Mediaset SpA dropped 11 percent after profit declined 65 percent amid lower advertising sales.

The Stoxx Europe 600 Index gained 0.5 percent to 262.57 at the close of trading. The benchmark measure has rallied 12 percent from this year’s low on June 4 as German Chancellor Angela Merkel and French President Francois Hollande last week joined European Central Bank President Mario Draghi in promising to do everything to protect the euro.

“Markets are clearly being driven by the expectation of further central-bank intervention,” said Peter Garnry, an equity strategist at Saxo Bank A/S in Copenhagen. “Everyone is expecting Draghi to launch another round of secondary-market purchases to get yields on Spanish and Italian bonds lower.”

Benchmark indexes rose in seven of the 17 western European markets open today. The U.K.’s FTSE 100 gained 1.4 percent while Germany’s DAX slipped 0.3 percent. Markets in Switzerland were closed for a holiday.

The number of shares changing hands in Stoxx 600 companies was 26 percent lower than the 30-day average, according to data compiled by Bloomberg.

U.K. Economy

A gauge of U.K. factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, fell to 45.4 last month from a revised 48.4 in June, Markit said today. That’s the lowest in 38 months. The median forecast of 30 economists in a Bloomberg News survey was 48.4. A reading below 50 indicates contraction.

The Purchasing Managers’ Index in China unexpectedly fell to 50.1 in July, the weakest in eight months, from 50.2 in June, a government report showed today. Fifty marks the dividing line between expansion and contraction. South Korea’s exports slid by more than double the amount forecast by analysts.

In the U.S., the Institute for Supply Management’s manufacturing index rose to 49.8 last month from 49.7 in June. The median estimate of 84 economists surveyed by Bloomberg was for a reading of 50.2.

Fed Meeting

The Federal Reserve will conclude a two-day policy meeting after the close of European trading today. The U.S. central bank has carried out two rounds of so-called quantitative easing since Lehman Brothers Holdings Inc. collapsed in 2008, buying $2.3 trillion in bonds to boost the economy.

Bearish options on European stocks have fallen to the cheapest levels compared with bullish ones in 19 months as traders bet that Draghi will deliver on his promise to save the euro. The ECB will hold its next policy meeting tomorrow.

“During the next two days, market attention will be firmly focused on the world’s central banks,” said Jonathan Sudaria, a trader at Capital Spreads in London. “The recent run of bad economic data around the globe and the turmoil in Europe has had traders instinctively looking to central banks for salvation with their hands out for some more monetary stimulus.”

Bundesbank President Jens Weidmann said the ECB shouldn’t exceed its mandate. The ECB’s independence “requires it to respect and not overstep its own mandate,” Weidmann said in an interview with former central bank chief Helmut Schlesinger that was conducted on June 29 and published on the Bundesbank’s website today. “We are the largest and most important central bank in the Eurosystem and we have a greater say than many other central banks.”

Next, Arkema

Next jumped 6.5 percent to 3,427 pence. The U.K.’s second-largest clothing retailer increased its annual profit forecast after first-half sales rose more than analysts estimated, driven by a surge in online and catalog sales.

Arkema climbed 5.7 percent to 63.25 euros after the French chemicals company reported second-quarter earnings before interest, taxes, depreciation, and amortization of 306 million euros ($377 million), beating analyst estimates of 272.6 million euros.

Standard Chartered Plc added 3.6 percent to 1,517.5 pence, the largest advance since June 6, after the U.K. bank that gets most of its revenue from Asia posted an 11 percent increase in first-half profit.

Rightmove Rises

Rightmove Plc gained 10 percent to 1,645 pence as the U.K.’s biggest residential property website posted a 28 percent increase in underlying operating profit.

Mediaset slumped 11 percent to 1.27 euros, the largest decline in almost three months. The broadcaster controlled by former Italian Prime Minister Silvio Berlusconi said second-quarter net income fell to 32.7 million euros from 94.4 million euros a year earlier. Analysts in a Bloomberg survey had estimated profit of 31.9 million euros.

Bayerische Motoren Werke AG slid 2.9 percent to 58.99 euros. The world’s biggest maker of luxury cars reported a 19 percent drop in second-quarter profit amid increased spending on new models and “intense” pricing competition.

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