German Stocks Climb on Italy Election, Stimulus Optimism

German stocks rose to their highest in more than three weeks as Italy formed a new government and investor optimism grew that central banks will maintain economic stimulus measures at meetings this week.

Deutsche Bank AG added 1.7 percent. Volkswagen AG gained 2.6 percent after Europe’s biggest carmaker said it will perform better than the overall market. Allianz SE and Munich Re climbed as a gauge of insurance companies advanced on the Stoxx Europe 600 Index.

The DAX Index rose 0.8 percent to 7,873.5 at the close of trading in Frankfurt, its highest level since April 3. The gauge is heading toward a monthly gain of 1 percent, after adding 4.8 percent last week as the U.K. avoided a triple-dip recession and investors speculated the European Central Bank will cut interest rates. The broader HDAX Index climbed 0.7 percent today.

“The markets are moving higher on optimism of a European Central Bank interest-rate cut later this week and the potential positive outcome of a new government in Italy being put in place,” Ion-Marc Valahu, co-founder and fund manager at Clairinvest in Geneva, said in a telephone interview. “There are also talks from the European Union on softening the bias towards austerity.”

The volume of shares changing hands in companies on the DAX was 44 percent lower than the average of the last 30 days, data compiled by Bloomberg showed.

In Italy, Enrico Letta was sworn in as prime minister yesterday, ending a political deadlock after February’s inconclusive elections. Letta formed an alliance with Silvio Berlusconi, who has pledged to undo some parts of previous premier Mario Monti’s budget-cutting measures.

Economic Sentiment

Economic confidence in the euro area fell in April more than forecast. An index of executive and consumer sentiment dropped to 88.6 from a revised 90.1 in March, the European Commission in Brussels said today. That’s the lowest since December. Economists had predicted a decline to 89.3, according to the median estimate in a Bloomberg News survey.

The ECB may lower its interest rate to 0.5 percent at a meeting on May 2, according to the median forecast of economists in a Bloomberg survey. The Bank of England will keep its interest rate unchanged at a policy meeting next week, a separate survey of economists showed.

Stocks extended gains as a Commerce Department report showed that U.S. household purchases climbed 0.2 percent in March, following a 0.7 percent gain a month earlier. Economists on average had called for spending to be little changed.

In the U.S., the Federal Reserve starts a two-day policy meeting tomorrow after data last week showed the world’s largest economy expanded in the first quarter less than forecast.

Deutsche Bank

Deutsche Bank, Germany’s largest lender, gained 1.7 percent to 32.90 euros, as a gauge of European lenders advanced on the Stoxx 600.

Volkswagen added 2.6 percent to 152 euros. “We expect that the Volkswagen group will outperform the market as a whole in a challenging environment,” VW said in a statement. The carmaker reiterated that operating profit will about equal the 1.14 billion euros posted last year.

Bayerische Motoren Werke AG, the largest manufacturer of luxury cars, advanced 1.8 percent to 69.86 euros. A gauge of auto stocks gained the most on the Stoxx 600.

HeidelbergCement AG, the world’s third-largest cement maker, climbed 1.4 percent to 54.11 euros. Davy raised its recommendation on the shares to neutral from underperform.

Allianz SE, Europe’s largest insurer, increased 1.3 percent to 112.45 euros, its highest price since Mar. 14. Munich Re, the world’s biggest reinsurer, added 1.3 percent to 150.80 euros.

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