European Stocks Post Biggest Weekly Gain Since November

European stocks posted their biggest weekly gain since November, rising to a 22-month high, after U.S. lawmakers agreed on a budget, avoiding sweeping tax increases and spending cuts that had threatened to push the world’s largest economy into a recession.

Xstrata Plc and Glencore International Plc jumped more than 7 percent as a report showed China’s manufacturing industry expanded for a third month. Transocean Ltd. surged 17 percent, its biggest weekly advance in 2 1/2 years, after settling with the U.S. government on the claims arising from the Gulf of Mexico oil spill in 2010. ArcelorMittal rose 5 percent after selling a 15 percent stake its Canadian mining unit.

The Stoxx Europe 600 Index added 3.3 percent to 287.83 this past week, its largest rally in six weeks. The equity benchmark surged 14 percent last year as the European Central Bank introduced a bond-buying program and the Federal Reserve opted for a third round of asset purchases.

“It’s good news that the U.S. didn’t miss the deadline.” said Michael Morris, who oversees $1 billion as head of European equities at Mitsubishi UFJ Asset Management in London. “Though they’ve kicked the can down the road again and I don’t believe the bill solves the problem, there’s a window in the next few months when both parties can come to an agreement to deal with spending. So I wouldn’t be too gloomy about that.”

The Stoxx 600 rallied to its highest level since February 2011 after the U.S. House of Representatives passed a budget bill on Jan. 1 that delayed automatic spending reductions by two months. The legislation also prevented taxes from rising for more than 99 percent of households.

U.S. Economy

A Labor Department report on Jan. 4 showed that the U.S. economy created more jobs in December than expected. Payrolls increased 155,000 last month, beating the average economist forecast of 152,000. The unemployment rate remained at 7.8 percent after the Labor Department revised the figure for November to 7.8 percent from 7.7 percent.

In China, manufacturing expanded for a third consecutive month in December. The purchasing managers’ index remained unchanged at 50.6, the National Bureau of Statistics and China Federation of Logistics and Purchasing said on Jan. 1. A reading above 50 means that activity increased.

“It doesn’t look like the authorities in China are going to officially lower their growth forecasts, so that’s a positive,” Morris said.

Commodity Producers

A gauge of mining companies jumped 4.2 percent, its biggest weekly rally in 3 1/2 months, as Xstrata added 7.8 percent and Glencore surged 7.7 percent. Anglo American Plc, a mining company with operations from Africa to Chile, rose 5.2 percent.

Transocean soared 17 percent, its largest weekly advance since August 2010, after the world’s biggest operator of offshore drilling rigs agreed on Jan. 3 to settle all federal claims following the explosion of the Deepwater Horizon platform for $1.4 billion. The accident killed 11 people and led to the world’s worst accidental oil spill. The U.S. Justice Department agreed to end its criminal investigation of the company, Transocean said in a statement.

ArcelorMittal added 5 percent. The world’s largest steelmaker sold the stake in ArcelorMittal Mines Canada Inc. for $1.1 billion to a group led by China Steel Corp. and Posco. A person familiar with the matter said on Oct. 20 that ArcelorMittal had studied selling about 30 percent of the business to help it repay debt. The company run by billionaire Lakshmi Mittal dropped 8.5 percent in 2012.

Alcatel-Lucent surged 19 percent for the shares’ biggest weekly rally in almost two years. The telecommunications-equipment maker slumped 17 percent last year. Imagination Technologies Group Plc rose 11 percent, its biggest weekly gain in more than a year. It dropped 28 percent in 2012.

Fresnillo Plc declined 2.6 percent as the price of silver dropped. UBS AG lowered its rating on the stock, saying the shares had outperformed the metal and its peers. The company rose 21 percent last year, while silver gained 9 percent. Fresnillo is the world’s largest primary producer of the metal.

Before it's here, it's on the Bloomberg Terminal.