European Stocks Advance as BOE Raises Growth Forecast

European stocks rose, extending their highest level since June 2008, after the Bank of England raised its growth forecast for Europe’s third-biggest economy.

EasyJet Plc led a gauge of travel companies higher after the low-cost airline said it will deliver improved returns and profitability for the full year. TUI AG added 4 percent after announcing plans to generate 1 billion euros ($1.3 billion) of profit by 2015. Commerzbank AG surged 12 percent on the first day that it offered new shares to investors.

The Stoxx Europe 600 Index gained 0.8 percent to 308.06 at the close in London. The equity benchmark has rallied 10 percent so far in 2013, its best start to a year since 1998, as central banks around the world maintained their stimulus measures.

“Quantitative easing globally is driving the market,” said Andrea Williams, who helps oversee $76 billion as head of European equities at Royal London Asset Management. “Generally, valuations still look reasonable and the corporate results season has also been OK.”

Stocks climbed as BOE Governor Mervyn King said that an economic recovery in the U.K. is now “in sight”. In the central bank’s quarterly Inflation Report, which is King’s last before he retires in July, officials predicted that growth will accelerate to 0.5 percent in the second quarter from 0.3 percent in the first three months of the year.

Euro-Area Growth

A report from Eurostat showed the combined economy of the euro area shrank more than economists had forecast. That extended the currency bloc’s recession to a record sixth quarter. Gross domestic product fell 0.2 percent in the first quarter, the European Union’s statistics office in Luxembourg said. GDP slid 0.6 percent in the final three months of 2012.

“It’s surprising and a little bit alarming that the market is shrugging off the bad news,” Williams said in a telephone interview today. “There does seem to be a disconnect between economic conditions, particularly in Europe.”

National benchmark indexes advanced in 16 of the 18 western-European markets. The U.K.’s FTSE 100 Index added 0.1 percent, while Germany’s DAX Index rose 0.3 percent. France’s CAC 40 Index gained 0.4 percent.

EasyJet jumped 8.3 percent to 1,224 pence after Europe’s second-largest discount carrier said revenue per seat for the second half will probably climb 4 percent. The company also narrowed its first-half pretax loss to 61 million pounds ($93 million) from 112 million pounds a year earlier, as more business travelers booked its flights.

Ryanair Holdings Plc, the biggest low-cost carrier, advanced 3.7 percent to 6.37 euros in Dublin trading.

TUI Gains

TUI climbed 4 percent to 9.41 euros after Europe’s largest tour operator said it intends to resume its dividend payment. New Chief Executive Officer Friedrich Joussen said he plans to cut administrative costs and jobs, reduce interest costs to about one third of the current 160 million euros each year, lower the number of hotel brands, and restructure the Hapag Lloyd cruise business.

The company will also streamline operations with its largest unit, TUI Travel Plc, of which it owns 54.5 percent. TUI Travel gained 2.4 percent to 355.4 pence in London.

Commerzbank surged 12 percent to 7.79 euros on the first day of its 2.5 billion-euro capital increase. Germany’s second-biggest lender has offered its investors 20 shares for every 21 they hold at 4.50 euros apiece. Bank of America Corp. upgraded the lender to buy, saying that the company has become too cheap.

Carmakers Climb

Fiat SpA posted the biggest rally on a gauge of carmakers as investors sought to reduce their bearish bets on the industry. The Italian carmaker jumped 7.6 percent to 5.36 euros in Milan. Peugeot SA climbed 4.5 percent to 6.56 euros and Renault SA increased 4.5 percent to 58.50 euros.

“Renault and Fiat are breaking out on the beta chase and short squeeze,” said Nick Xanders, an equity strategist at BTIG Ltd. in London. “Even Peugeot has started to move higher in sympathy. Renault has the added benefit of being aided by the move in Nissan.”

The number of Renault shares out on loan, an indication of short sellers’ interest, is 31 percent of the free float, according to data compiled by Markit. The short interest in Peugeot is 21 percent and Fiat 17 percent, the data shows.

Short sellers borrow equities to sell them, hoping to buy them back at a lower price and pocket the difference.

ITV Plc slid 1.9 percent to 129.2 pence after the commercial broadcaster forecast that revenue from its network of television channels will fall 3 percent in its first half. Chief Executive Officer Adam Crozier said in a statement that the company was cautious about TV advertising in 2013.

Vivendi, Iliad

Vivendi SA lost 1.7 percent to 15.72 euros in Paris after the owner of SFR, France’s second-biggest mobile-phone operator, reported a 21 percent drop in first-quarter Ebit to 1.18 billion euros. That missed analyst estimates.

SFR reported that revenue declined 11 percent to 2.6 billion euros in the first quarter. Iliad SA, which entered France’s mobile-phone market with budget monthly tariffs last year, also posted quarterly revenue. The company said that mobile-phone revenue tripled to 294.5 million euros.

Iliad’s shares still slipped 2.3 percent to 175.50 euros, their first retreat in four days.

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