A smaller than expected drop in US jobs in February and easing concerns over the fiscal situation in Greece helped lift European share prices to six-week highs yesterday, with banks building on recent gains.
Investors' appetite for risky assets such as equities rose, with the VDAX-NEW volatility index hitting its lowest in nearly two years. The lower the index, which is based on sell and buy options on Frankfurt's top-30 stocks, the higher the market's desire to take more risk.
The pan-European FTSEurofirst 300 index rose for a sixth straight day to end 1.8 per cent higher at 1,054.55 points after touching 1,054.60 - the highest since January 21. The index recorded its biggest daily gain in three months and rose 4.7 per cent for the week, the biggest weekly rise since mid-July.
The index, which gained 26 per cent last year, is up more than 63 per cent since hitting a record low in March 2009. Volumes were 101 per cent of the 90-day daily average.
Banks were the top gainers, with the STOXX Europe 600 banking index rising 3.1 per cent, its biggest one-day gain in four months. Standard Chartered, HSBC, Barclays, BNP Paribas, Société Générale, Allied Irish Banks and Bank of Ireland rose 2.5 to 14 per cent.
"Every (item of) positive news is welcome, and the (US) non-farm payrolls figures are certainly quite helpful," said Gerhard Schwarz, head of global equity strategy at UniCredit in Munich.
"We are in a situation where the market is seeing that fears are calming down concerning Greece as we have seen two important milestones, the austerity package and the issuance of the 10-year bond, which alleviate funding concerns to some extent."
Greece's hopes of solving its debt crisis got a boost when it attracted heavy demand for the sale of a bond issue on Thursday, but an opinion poll showed the government faces stiff opposition to planned austerity measures.
Germany and the chairman of the group of countries using the euro had ruled out granting any immediate financial aid for Greece ahead of talks yesterday with Prime Minister George Papandreou.
On the macroeconomic front, data showed US employers cut a smaller than expected 36,000 jobs in February, leaving the national unemployment rate steady at 9.7 per cent, bolstering views the labour market was on the brink of creating jobs.
"Many now believe that if we can get a good number with so much going against it, then March and April will start to show some significant improvements in the employment situation and in turn lead many to believe that economic recovery has shifted up another gear," said James Hughes, analyst at CMC Markets.
The mining sector was the second biggest gainer, with STOXX Europe 600 basic resources index rising 3.3 per cent after strong gains in metals on improving economic outlook.
BHP Billiton, Anglo American, Antofagasta, Rio Tinto, Xstrata and Eurasian Natural Resources rose 2.4 to 5.6 per cent. Analysts were positive on the near-term outlook. "As long as we don't have to really question the earnings outlook, the valuation side will still lend us some support here," said Mr Schwarz of UniCredit.