European equities advanced yesterday as encouraging US data and expectations of a possible Fed stimulus overshadowed steep losses in Tokyo, which was hit after Moody’s downgraded Japan’s debt.

London’s FTSE 100 climbed 1.49 per cent to 5,205.85 points and in Paris the CAC 40 gained 1.79 per cent to 3,139.55 points. In Frankfurt the DAX jumped 2.69 per cent to 5,681.08 points despite news of falling German business confidence.

“European markets extended their gains this afternoon after trading fairly flat in the morning session, despite some disappointing economic data out of Germany,” said CMC Markets analyst Michael Hewson.

“US durable goods for July gave the markets an unexpected boost coming in at four per cent, well above June’s 1.9 per cent decline, and well above expectations of two per cent,” he added.

Wall Street initially opened lower after gains of almost three percent on Tuesday on growing hopes that the US Federal Reserve will take more aggressive easing measures to kick-start a sluggish economy, but quickly bounced back after the durable goods figures.

Approaching midday, the boost had faded with the Dow Jones Industrial Average essentially flat at 11,181.34 points.

The broader S&P 500 index was off 0.24 per cent to 1,159.51 points while the tech-heavy Nasdaq slipped 0.34 per cent to 2,437.85 points. Saxo Banque analyst Alexandre Baradez said investors were more focused on the prospects of the Fed providing a boost to the eco-nomy.

“Just one thing is carrying the market: expectations surrounding the speech of US Federal Reserve Chairman Ben Bernanke on Friday,” said Baradez.

“The indicators are of little interest to investors,” he added.

Elsewhere in Europe, Lisbon rose 0.52 per cent, Madrid 1.08 per cent, Milan 1.86 per cent, Swiss stocks 1.87 per cent and Brussels 2.89 per cent.

But Tokyo tumbled yesterday as a downgrade of Japanese sovereign debt and banks by ratings agency Moody’s soured sentiment. The benchmark Nikkei-225 index slumped 1.07 per cent to finish at 8,639.61 points.