European Stocks Advance to 18-Month High on U.S. Optimism

Europe Stocks Rise on U.S. Budget Optimism, Before ECB Forecast
A euro sign sculpture is seen illuminated at night outside the European Central Bank's (ECB) headquarters in Frankfurt, Germany. Photographer: Hannelore Foerster/Bloomberg

European stocks advanced to an 18-month high amid optimism U.S. lawmakers will agree on a new budget and avoid the so-called fiscal cliff.

European Aeronautic, Defence & Space Co. jumped 8 percent after announcing a new shareholder structure and saying it will buy back shares. Daimler AG rose 1.2 percent after selling half its remaining holding in EADS. GDF Suez SA slid to its lowest ever after saying earnings will decline next year.

The Stoxx Europe 600 Index added 0.7 percent to 278.82 at the close of trading, its highest since May 31, 2011. The gauge has surged 19 percent from this year’s low on June 4 as the European Central Bank announced a bond-buying plan, the Federal Reserve boosted stimulus measures and optimism rose that U.S. lawmakers will agree on a budget.

“Markets are moving on the expectation that however difficult things may be, there will be a U.S. budget deal,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London. “It’s almost inconceivable at this stage that the Congress will allow the fiscal cliff to happen, especially when we don’t really know the severity of the recession.”

About 80 members of Congress, comprising Republicans and Democrats, signed a letter calling for an exploration of “all options” in to end a deadlock between President Barack Obama and House Speaker John Boehner over taxes for the highest-earning Americans. Congress must strike a budget deal by the end of the year to prevent more than $600 billion of automatic tax increases and spending cuts from coming into effect.

ECB Forecasts

ECB President Mario Draghi said he expects weak economic growth for the euro-area to continue into the next year.

At a press conference in Frankfurt, he said the ECB now forecasts that the economy will shrink 0.5 percent this year, more than the 0.4 percent contraction it predicted in September. The ECB cut its 2013 forecast to a contraction of 0.3 percent from 0.5 percent growth, he said.

The ECB kept its benchmark interest rate unchanged at a record low of 0.75 percent. The Bank of England also left its interest rate unchanged today.

Italy’s FTSE MIB Index fell 0.8 percent after its former prime minister, Silvio Berlusconi, threatened to withdraw his party’s support for the incumbent Mario Monti.

National benchmark indexes rose in 15 of the 18 western European markets. Finland’s markets were closed for a national holiday. The U.K.’s FTSE 100 climbed 0.2 percent, France’s CAC 40 rose 0.3 percent and Germany’s DAX advanced 1.1 percent.

EADS Ownership

EADS jumped 8 percent to 29.40 euros after the company changed its ownership structure to allow Germany and France to each hold a 12 percent stake. EADS also said it will buy back as much as 15 percent of outstanding shares.

Daimler advanced 1.2 percent to 38.65 euros after selling a 7.5 percent-stake in EADS, valued at 1.66 billion euros ($2.17 billion). The automaker will sell more of its remaining 7.5 percent holding after a lock-up period of 180 days from the end of the sale of the first tranche.

Imagination Technologies Plc climbed 6.4 percent to 426.5 pence after JPMorgan Chase & Co. analysts led by Sandeep Deshpande said that the company’s first-half results next week will meet or beat analyst expectations. The stock has “considerable upside” in the medium term, they wrote.

Zumtobel AG advanced 5.9 percent to 9 euros after JPMorgan wrote that the Austrian lighting company’s profit margins will improve, raising its recommendation on the shares to overweight, the equivalent of buy, from neutral.

GDF Suez

GDF Suez tumbled 11 percent to 15.29 euros, the lowest price since its initial public offering in July 2005. Europe’s largest utility by market value said late yesterday that recurring net income will be 3.1 billion euros to 3.5 billion euros next year, compared with an expected 3.7 billion euros to 4.2 billion euros in 2012.

Bank of America lowered its recommendation on the shares to neutral, the equivalent of hold, from buy.

Saipem SpA, Europe’s largest oil contractor by market value, plunged 6.7 percent to 30.49 euros. The company said late yesterday that Chief Executive Officer Pietro Franco Tali and Alessandro Bernini, chief financial officer at its biggest shareholder, Eni SpA, resigned amid an Italian investigation into contracts in Algeria.

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