European Stocks Post Biggest Two-Day Rally in 11 Months

European stocks advanced, with the benchmark Stoxx Europe 600 Index posting the biggest two-day gain in almost 11 months, as China’s cash crunch eased and German consumer confidence topped forecasts.

Colruyt SA jumped the most in almost a year after reporting earnings that beat estimates. Direct Line Insurance Group Plc, the U.K.’s biggest home and motor insurer, rallied 3.8 percent after saying it will cut jobs. GSW Immobilien AG, Berlin’s largest residential landlord by market value, advanced 3.8 percent after saying both its chairman and chief executive officer will leave. Mining companies declined as metals fell.

The Stoxx 600 rose 1.7 percent to 284.54 at the close of trading. The benchmark index has rallied 3.2 percent over the past two days, for the largest jump since July 27 last year. The gauge has still slumped 8.4 percent since May 22, when Federal Reserve Chairman Ben S. Bernanke commented on the possibility of paring bond purchases as the U.S. economy grows.

“The first leg of the correction is close to over and the markets should be more stable going into month end,” said Jean-Paul Jeckelmann, chief investment officer at Banque Bonhote & Cie. in Neuchatel, Switzerland, who helps manage $1.4 billion in equities. “The Chinese central bank’s liquidity pledge has calmed markets in the short term, but the picture is not that clear in the medium term.”

The Stoxx 600 has declined 5.4 percent this month and 3.2 percent this quarter, trimming its 2013 advance to 1.7 percent. The VStoxx Index of options prices on the Euro Stoxx 50 Index lost 6.6 percent to 22.55, the biggest drop in two weeks.

China Liquidity

The cost of locking in China’s interest rates slid for a fourth day and money-market rates fell after the central bank pledged to ease the worst cash crunch in a decade. The People’s Bank of China has provided financing to some financial institutions to stabilize interbank lending rates and will use short-term liquidity operations and existing loan-facility tools to ensure steady markets, according to a statement yesterday.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repurchase rate, fell 16 basis points to 3.91 percent, data compiled by Bloomberg show. It touched an all-time high of 5.06 percent on June 20.

“The vicious moves lower on fears of Fed tapering and a Chinese credit crunch seem to have abated for now and tentative buyers are feeling a little confidence about dipping their toes back into the market,” Jonathan Sudaria, a trader at Capital Spreads in London, wrote in an e-mail. China’s central bank “soothed Asian markets by stating that it had pumped cash into some financial institutions,” he said.

German Confidence

German consumer confidence will rise to the highest level since 2007 next month, GfK AG said today. The sentiment gauge climbed to 6.8 from 6.5 in June, topping economists forecasts in a Bloomberg survey.

National benchmark indexes advanced in all 18 western European markets today, except Greece. France’s CAC 40 climbed 2.1 percent, the most in two months. Germany’s DAX rallied 1.7 percent and the U.K.’s FTSE 100 added 1 percent.

Colruyt gained 8.3 percent to 40.08 euros, the largest jump since June 27, 2012. Belgium’s biggest discount food retailer said full-year earnings before interest, taxes, depreciation and amortization amounted to 699.8 million euros ($910 million), beating the average 684 million-euro analyst projection in a Bloomberg survey. The company also raised its dividend to 1 euro a share, exceeding the Bloomberg Dividend Forecast of 98 cents.

Direct Line climbed 3.8 percent to 227.4 pence, the highest since its initial public offering in October. The insurer said it may cut about 2,000 jobs as part of a plan to further reduce costs to 1 billion pounds by next year.

GSW, Afren

GSW increased 3.8 percent to 29.61 euros. CEO Bernd Kottmann will leave his post on July 15 after investors protested how he was hired, Berlin-based GSW said in a statement late yesterday. Chairman Eckart John von Freyend will leave on July 31. The decision ends two months of conflict that ended at a meeting in Berlin last week at which shareholders passed a no-confidence motion against Kottmann and voted to dismiss Freyend.

Afren Plc rallied 7.3 percent to 130.6 pence as the U.K. oil explorer in Africa and northern Iraq said its Ogo well discovered a “significant” light oil field in Nigeria.

A gauge of mining companies was the only industry among 19 groups in the Stoxx 600 that declined. Anglo American Plc fell 3.3 percent to 1,256 pence, and Antofagasta Plc slid 2.1 percent to 801.5 pence, as gold retreated to the lowest price since August 2010 and copper dropped.