European Stocks Post Biggest Annual Rally Since 2009

European Stocks posted the biggest annual rally in three years as the European Central Bank’s program to purchase bonds of the region’s weakest economies helped ease concern the euro area will fracture.

Sky Deutschland AG, the German pay-TV operator half-owned by Rupert Murdoch’s News Corp., nearly tripled last year for the best performance on the benchmark Stoxx Europe 600 Index. KBC Groep NV, Belgium’s biggest bank and insurer by market value, soared 169 percent. Bankia SA, the lender whose government takeover helped provoke Spain’s banking bailout, had the biggest decline, plunging 89 percent.

The Stoxx 600 closed at 279.68 yesterday for a yearly gain of 14 percent, the biggest increase since 2009’s 28 percent jump. The gauge has fallen since climbing to a 19-month high of 281.81 on Dec. 20 as U.S. lawmakers failed to reach a budget deal before European markets closed for the year, fueling concern that automatic tax increases and spending cuts will come into effect in 2013.

“European stocks have had a very good year, even though the budget talks have damped spirits at the end of the year,” said Jacques Porta, a fund manager who helps oversee $627 million at Ofi Patrimoine in Paris. “Going into 2013, European markets have two huge advantages -- cheap valuation and less stress about the debt crisis.”

Companies in the Stoxx 600 are valued at 11.4 times estimated 2013 earnings, according to data compiled by Bloomberg survey. That compares with an average of 12 times projected profits over the past seven years, the data show.

The gauge has advanced for seven straight months, the longest winning streak since April 1999.

Best Performers

Auto-industry companies had the biggest gains among 19 industry groups in the Stoxx 600 last year. The Stoxx 600 Automobiles & Parts Index rallied 36 percent, led by Continental AG and Michelin & Cie.

Telecommunications shares declined 11 percent for the biggest loss, dragged lower by a 60 percent slide in Royal KPN NV, the Dutch phone company partly owned by Mexican billionaire Carlos Slim.

Greece’s ASE Index surged 33 percent last year for the biggest gain among the 18 western European markets as euro-area finance ministers eased terms on the nation’s loans disbursed further financial aid.

Germany’s DAX Index had the second-largest advance, climbing 29 percent. The U.K.’s FTSE 100 and France’s CAC 40 rose 5.8 percent and 15 percent, respectively. Spain’s IBEX 35 Index was the region’s only benchmark measure to fall, dropping 4.7 percent for a third straight year of losses.

Early Gains

The Stoxx 600 started 2012 with gains, rising to a March 16 high of 272.4 as the ECB provided 1 trillion euros ($1.3 trillion) of loans to euro-area lenders. The gauge dropped 14 percent through the year’s June 4 low amid concern Greece would be forced to leave the euro currency union.

The benchmark index rebounded, rallying 19 percent by the end of the year as ECB President Mario Draghi pledged to do whatever it took to preserve the euro and announced an unlimited bond-buying plan.

Stocks also gained as the Federal Reserve began a third round of asset purchases. Chairman Ben S. Bernanke said on Sept. 13 that the U.S. central bank will buy $40 billion of mortgage-backed securities a month, without a limit on the total or duration.

A gauge of basic-resources producers in the Stoxx 600 gained 6.5 percent in the last quarter of 2012 as reports showed China’s manufacturing expanded, fueling optimism the world’s second-largest economy is recovering. The index ended the year 3.9 percent higher.

The final reading of a Purchasing Managers’ Index in China was 51.5 in December, according to a statement from HSBC Holdings Plc and Markit Economics yesterday. That compared with the 50.9 preliminary reading on Dec. 14 and a final 50.5 in November. A level above 50 indicates expansion.

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