European Stocks Rally as ECB Says Rates to Remain Low

European stocks rose the most in more than two months as the European Central Bank said that interest rates will remain low for an extended period, and Portugal’s political leaders sought to hold their coalition government together. U.S. index futures and Asian shares also climbed.

Banco Espirito Santo SA rallied after sinking 11 percent yesterday. Taylor Wimpey Plc rose 7.1 percent as the U.K. housebuilder said its operating-profit margin increased in the first half. OC Oerlikon Corp. added 3.5 percent after completing the sale of its natural-fibers business.

The Stoxx Europe 600 Index surged 2.3 percent to 292.15 at the close of trading, paring the gauge’s retreat from its 2013 high on May 22 to 5.9 percent. Standard & Poor’s 500 Index futures rose 0.9 percent today, while the MSCI Asia Pacific Index added 0.4 percent. U.S. equity markets are closed today for the Independence Day holiday.

“Forward guidance has entered the Eurotower,” said Witold Bahrke, who helps oversee $55 billion as a senior strategist at PFA Pension A/S in Copenhagen. “We got a taster at earlier meetings, but today’s formulation is a real innovation.”

The ECB’s President Mario Draghi predicted that interest rates will remain low for an extended period of time. Speaking at a press conference at the central bank’s offices in Frankfurt’s Eurotower, Draghi said that key interest rates will remain at their current levels or lower for as long as necessary. Policy makers left their main refinancing rate at 0.5 percent at today’s meeting as predicted by all but one of the 62 economists surveyed by Bloomberg News.

Forward Guidance

In the U.K., the Bank of England signaled that it will leave interest rates at a record low for longer than investors had expected.

“The implied rise in the expected future path of bank rate was not warranted by the recent developments in the domestic economy,” the BOE said in a statement.

The central bank left its bond-purchase target at 375 billion pounds ($565 billion) and its key rate at 0.5 percent as predicted by economists in Bloomberg surveys.

The Stoxx 600 slid 0.6 percent yesterday as the leader of the junior partner in Portugal’s coalition government resigned and crude oil surged above $100 a barrel.

National benchmark indexes advanced in every western-European market except Iceland. The U.K.’s FTSE 100 jumped 3.1 percent, its biggest rally in 19 months. France’s CAC 40 surged 2.9 percent and Germany’s DAX gained 2.1 percent.

Portugal’s Government

Paulo Portas, whose resignation on July 2 threatened to bring down the Portuguese government, meets with Prime Minister Pedro Passos Coelho in an attempt to hold the coalition together. An official in CDS, the smaller of the two parties in the government, said that Portas will seek a guarantee that his group can retain an influence on policy.

“We’ve seen slightly more positive tones out of Portugal in the last hours which gives markets some relief,” Bahrke wrote in an e-mail.

Banco Espirito Santo SA, Portugal biggest bank by market value, rallied 11 percent to 60.5 euro cents. Banco Comercial Portugues SA, the second largest, surged 9.9 percent to 8.9 euro cents. Portugal’s PSI 20 Index jumped 3.7 percent, paring its 5.3 percent tumble yesterday.

In Egypt, the army removed President Mohamed Mursi from power and suspended the constitution. West Texas Intermediate crude remained above $100 a barrel for a second day amid concern the rioting in the Arab world’s most populous state will disrupt the supply of oil through the Suez Canal.

Jobs Report

In the U.S., a Labor Department report tomorrow will show that the world’s biggest economy added 165,000 jobs in June, according to the median estimate in a Bloomberg survey. The release may also show that the unemployment rate fell to 7.5 percent from 7.6 percent in May.

Taylor Wimpey added 7.1 percent to 103.8 pence. The U.K.’s second-largest housebuilder by market value reported an operating-profit margin in its domestic market of more than 13 percent, compared with 11.2 percent a year earlier. It will publish first-half results on July 31.

Persimmon Plc, the country’s largest homebuilder, added 4.4 percent to 1,266 pence. Barratt Developments Plc rose 5 percent to 333.8 pence.

Oerlikon rose 3.5 percent to 11.70 Swiss francs after the maker of textile machinery said it will receive 470 million francs ($491 million) from the sale of its natural-fibers business to Jinsheng Group of China. Oerlikon announced the deal in December.

Peugeot Rallies

PSA Peugeot Citroen surged 10 percent to 6.86 euros, its biggest gain since April 24. Goldman Sachs Group Inc. upgraded the shares of the French automaker to buy from neutral. The brokerage said that Peugeot will probably beat its goals for reducing cash consumption.

Subsea 7 SA added 2.7 percent to 107.30 kroner. The provider of offshore oilfield services won a $400 million contract from Petroleo Brasileiro SA.

Celesio AG sank 7.7 percent to 15.22 euros, the biggest drop since September 2011. Jefferies Group LLC downgraded the German drug distributor to hold from buy. The shares fell the most in 21 months yesterday after the company’s supervisory board fired Chief Executive Officer Markus Pinger. In a statement, the company cited differences of opinion over how to manage the business.

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