European stock exchanges posted sharp gains yesterday, driven higher by a better-than-expect-ed rise in US services sector activity.
The London FTSE 100 index climbed 1.44 per cent to 5,635.76 points while in Paris the CAC 40 rose 2.25 per cent to 3,731.93 points. The Frankfurt the DAX added 1.33 per cent at 6,215.83 points.
Elsewhere, Milan gained 2.09 per cent, Madrid 2.58 per cent and the Swiss Market Index 1.04 per cent.
The late-day gains in Europe followed solid opening advances in response to a reported improvement in the services sector in Britain and a decision by the Bank of Japan to adopt a near zero interest rate policy.
The BoJ also announced further easing measures to help safeguard a fragile recovery from the threats of deflation and a strong yen.
The central bank lowered its key rate to a range of between zero and 0.1 per cent, from the rate of 0.1 per cent set at the height of the financial crisis in December 2008.
European momentum then picked up noticeably when the Institute of Supply Management said its US non-manufacturing index rose to 53.2 per cent, the ninth consecutive month of growth.
An index reading above 50 per cent indicates expansion in the key sector, which accounts for the bulk of overall US economic output.
Most analysts had expected the index, based on a survey of the nation’s purchasing and supply executives, would rise to 51.8 per cent from 51.5 per cent in August.
Analysts said the services sector was holding up better than manufacturing activity, a key driver of the economy’s recovery from the worst recession in decades.
Nonetheless, Aaron Smith at Moody’s Analytics warned that “while the gain points to a pick-up in service-sector growth after a brief slump, the composite index is still below the average in the first half of the year and is consistent with mediocre real (gross domestic product) growth of around two per cent”.
Among European stocks in focus, German energy groups EON and RWE were unable to take advantage of strengthened investor confidence.
EON lost 0.80 per cent and RWE 0.20 per cent as HSBC bank warned that the shares would come under pressure from weaker gas sales and a planned German tax on nuclear fuel.
In Paris, banks won substantial support from the US services sector report. BNP Paribas rose 3.88 per cent and Credit Agricole 3.08 per cent.
Société Générale gained 3.61 per cent after a Paris court sentenced former trader Jerome Kerviel to three years in prison after finding him guilty of fraudulent actions that cost the bank almost €5 billion.
The guilty verdict appeared to support the bank’s contention that Mr Kerviel had acted alone.
US stocks enjoyed a strong start to the day on the services sector report.
The blue-chip Dow Jones Industrial Average was up 1.24 per cent at 10,885.23 at mid-day while the tech-rich Nasdaq composite index gained 1.77 per cent to 2,386.11.
In Asia, Japanese shares surged after the central bank announcement. The Nikkei index in Tokyo ending up 1.47 per cent.
Hong Kong shares also rebounded from earlier lows to gain 0.09 per cent but Sydney fell 0.40 per cent. Chinese markets were closed for a public holiday.