European stocks shrug off ECB

European shares jumped yesterday, with resource stocks providing a boost as investors shrugged off hawkish European Central Bank comments to track gains on Wall Street.

Shares in tobacco companies including BAT rose after a US court ruling, while drugmaker Shire gained on renewed bid talk.

The FTSEurofirst 300 index closed up one per cent at 1,318.8, after falling 1.2 per cent on Wednesday. Across Europe, the FTSE 100 rose 1.1 per cent, while Germany's DAX added 1.2 per cent and France's CAC 40 gained 0.9 per cent.

"We think the visibility is quite low and expect more upside in terms of interest rates," said Guillaume Duchesne, equity strategist at Fortis Private Banking.

"We are not negative on earnings but we think the expectations of the market are quite high so there is a downside risk."

Wall Street stocks rose, with the Dow Jones up 0.7 per cent as a series of economic reports suggested the Federal Reserve could pause its campaign of interest rate rises.

The European Central Bank kept its key rate at 2.75 per cent but signalled it was poised to quicken the pace of interest rate increases by tightening again early next month to hold inflationary pressures in check.

"With evidence of a broadening economic recovery in the Euro zone, rapid credit creation and sticky inflation, we anticipate rates peaking in the 3.75-4 per cent range early by end of the first quarter 2007," said Jon Cunliffe, head of interest rate alpha at ABN AMRO Asset Management in a note.

Resource stocks added to the positive tone, with miners gaining alongside copper prices. BHP Billiton added 2.2 per cent and Antofagasta added 2.4 per cent.

Oil stocks were also stronger, with BP adding 1.1 per cent and Total gaining 0.6 per cent as crude oil remained close to $75 a barrel, a day after hitting record highs.

Tobacco stock were boosted by a favourable US court ruling, with BATS adding 2.6 per cent and Gallaher gaining 1.7 per cent.

Drugmakers were stronger, with Shire adding 3.1 per cent on renewed talk of bid interest from Switzerland's Serono. Among other drug companies, GlaxoSmithKline added 1.8 per cent and AstraZeneca gained 1.6 per cent.

Germany's Bayer dropped 1.1 per cent after the drug and chemicals company raised around €1.2 billion in a capital increase to help fund its purchase of Schering.

France's Natexis rallied eight per cent after French newspaper Les Echos reported Sanpaolo IMI might buy a two per cent stake in NatIxis, the French bank currently being formed through a merger.

Also on the upside, France's Carrefour added 2.7 per cent after its largest shareholder denied it planned to sell its stake in the retailer.

Elsewhere, Veolia Environnement fell 1.7 per cent after dealers said French media group Vivendi was selling its remaining 5.3 per cent stake in former utility unit for around €860 million.

Also on the downside, Norwegian shipping group Stolt-Nielsen fell 3.1 per cent after posting a smaller-than-expected rise in second-quarter operating profits.