European shares climb following Bernanke speech

European shares rose yesterday as investors welcomed a speech by US Federal Reserve chairman Ben Bernanke that left open the possibility for new stimulus measures but without providing specifics.

At closing, Frankfurt’s DAX 30 surged 1.09 per cent to 6,970.79 points and Paris’ CAC 40 gained one per cent to 3,413.07 points though London bucked the trend with the FTSE-100 slipping 0.14 per cent to 5,711.48 points.

In Spain, the main Ibex-35 stock index was up 3.13 per cent with banking stocks leading gains after the Spanish Cabinet approved the creation of a “bad bank” as part of a wide-ranging banking reform. Milan rallied 2.16 per cent.

“The markets are reassured that central banks are still ready to act, whether in Europe or the US,” said Alexandre Baradez of Saxo Bank in Paris.

In foreign exchange deals, the European single currency rose to $1.2587, compared with $1.2504 late in New York on Thursday. The dollar slipped to 78.31 Japanese yen from 78.59 yen on Thursday.

After initial uncertainty, US stocks surged after the Bernanke talk, with the Dow Jones Industrial Average up 0.96 per cent in midday trading, the broader S&P 500 rising 0.75 per cent and the tech-rich Nasdaq climbing 0.76 per cent.

In a much-anticipated speech to central bankers in Jackson Hole, Wyoming, the chief of the US central bank offered no new promises of intervention to boost growth, but signalled that he was leaning that way.

Mr Bernanke expressed deep worry over the US economy, calling the situation unsatisfactory and saying labour market stagnation was “a grave concern”.

Mr Bernanke, whose policies have been criticised by US conservative politicians, including Republican presidential candidate Mitt Romney, delivered a lengthy defence of the Fed’s intervention actions since the financial crisis.

He said that moves to drive down long-term interest rates through its “quantitative easing” (QE), or bond purchases, and other programs had boosted growth and added jobs, while not increasing the threat of inflation.

Signals that the European Central Bank is serious about intervening to support the euro also helped European stocks and the euro.

“The markets have regained a little hope after several reas-suring comments on the ECB,” Global Equities trader Xavier de Villepion said.

ECB executive board member Benoit Coeure said yesterday the central bank was looking at all possible means to ensure the effectiveness of its monetary policy and would do “everything which is possible under its mandate to protect the integrity of the euro”.

After next week’s regular monthly monetary policy meeting, ECB chief Mario Draghi is expected to detail under what conditions the central bank would intervene massively in bond markets to help struggling eurozone states.