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German Stocks Advance as Draghi Says Rates to Remain Low

July 4 (Bloomberg) -- German stocks advanced the most in more than two months as the European Central Bank sought to rein in market borrowing costs by pledging accommodative monetary policy for the foreseeable future.

Volkswagen AG, Daimler AG and Continental AG all advanced at least 3.5 percent as a gauge of European carmakers rose the most since September. Celesio AG plunged 7.7 percent as Jefferies Group LLC cut its rating for the drug distributor.

The DAX rallied 2.1 percent to 7,994.31 at the close of trading in Frankfurt, its biggest gain since April 23. The gauge has pared its decline from its record on May 22, when the Federal Reserve signaled it may pare stimulus if the U.S. economy strengthens in line with its forecasts, to 6.3 percent. The broader HDAX Index also advanced 2.1 percent today.

“Draghi has implied some forward guidance before, but it has never been quite as explicit as today,” said James Butterfill, who helps manage about $44 billion as head of global equity strategy at Coutts & Co. in London. “We’re seeing a change in stance in both Europe and the U.K. They’re following the U.S. in trying to provide better visibility, and though there isn’t yet enough detail, it’s a step in the right direction. People may look for specific targets linked to policy in the future, like unemployment in the U.S.”

Forward Guidance

ECB President Mario Draghi departed from his practice of not committing on future policy and said the central bank will keep interest rates at current levels or lower for an “extended period of time.”

ECB officials in Frankfurt left the main refinancing rate at 0.5 percent after reducing it by a quarter point in May. The decision was predicted by 61 of 62 economists in a Bloomberg News survey.

By using forward guidance, Draghi’s aim is to persuade investors that the ECB has no plans to end its easy policy stance so that they, in turn, keep their longer-term rates low, paving the way for consumers and households to borrow cheaply and bolster economic activity.

In London, the Bank of England kept its benchmark interest rate and asset-purchase target unchanged at Mark Carney’s inaugural decision as governor. The BOE said higher rates were not warranted given the state of the U.K. economy.

Volkswagen and Daimler rose 3.9 percent to 160.1 euros and 4.5 percent to 49.08 euros, respectively, as a gauge of European automotive-related stocks was the biggest gainer among the 19 industry groups on the Stoxx Europe 600 Index. Continental, the region’s second-largest tiremaker, gained 4.2 percent to 109.05 euros, its highest price since at least 1992.

Celesio slumped 7.7 percent to 15.22 euros, for the biggest three-day slide in two years. Jefferies cut its rating of the stock to hold from buy, with analyst James Vane-Tempest saying the company’s strategy is uncertain after the dismissal of Chief Executive Officer Markus Pinger yesterday.

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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