European stocks posted their biggest two-day gain since October 2011 on increased investor confidence that central banks will act to support markets.
The Stoxx Europe 600 Index rose 3% to 338.36 at the close of trading, taking its two-day climb to 5%.
It added 2.6% this week — its biggest such gain since November — after rising the most in a month on Thursday following European Central Bank president Mario Draghi’s signal of an increase in stimulus as early as March.
The volume of shares changing hands was 41% higher than the 30-day average. The VStoxx Index, measuring volatility expectations for euro-area shares, slid 11%.
“There is hope of more stimulus in March and potential for even more stimulus in Japan and China, so if we get concrete positive economic news the rebound could last into next week,” John Plassard, senior equity-sales trader at Mirabaud Securities in Geneva said.
“I told my clients to fasten their seatbelts and wait for better news, and this is finally happening.”
Central banks are returning to centre stage as concern over Chinese growth rocks international financial markets, and the prolonged slide in oil prices puts inflation targets out of reach.
Pressure is increasing on the Bank of Japan to enlarge stimulus at its meeting next week, while China said it will keep intervening in its equity market to “look after” investors and has no intention of further devaluing the yuan.
Speaking yesterday at the World Economic Forum in Davos, Switzerland, Mr Draghi said he is concerned about the outlook for eurozone inflation and reiterated the ECB’s determination to reach its price-stability mandate.
The Stoxx 600 has fallen 7.5% this year and entered a bear market last week. Strategists are still betting on a rebound by the end of the year, with an average year-end forecast of 402 for the gauge.
A measure of energy-related companies in Europe rallied the most of the 19 industry groups on the Stoxx 600 as oil rebounded, with service provider Tullow Oil surging 14% and Seadrill rising 8.6%.
BHP Billiton helped push a gauge of commodity producers higher, although late sell-offs in Glencore and Rio Tinto Group pared gains.
Italian luxury goods provider Tod’s gained 3.7% after reporting better-than-expected sales for the fourth quarter and full year.
Sandvik rose 6.6% after it announced the appointment of Electrolux chief financial officer Tomas Eliasson as its new CFO.
Banca Monte dei Paschi di Siena advanced 2.7% after saying it is bringing forward the board meeting on its results to reassure markets.
Chairman Massimo Tononi separately told Il Sole 24 Ore that the lender has no plans for a capital increase, though he did not rule out the possibility of being helped by the Italian government.
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