European stock markets and the euro surged yesterday, boosted by US Federal Reserve plans to stimulate the economy and putting aside concerns about inflation.
At close, London’s FTSE 100 index of top companies finished up 1.64 per cent to 5,915.55 points, Frankfurt’s DAX 30 gained 1.39 per cent to 7,412.13 points, while in Paris the CAC 40 rallied 2.27 per cent to 3,581.58 points.
Milan soared 2.34 per cent and Madrid jumped 2.75 per cent.
In midday trade on Wall Street, the rises were slightly more muted after US inflation data, with the Dow Jones Industrial Average up 0.30 per cent, while the S&P 500-stock index added 0.52 per cent and the tech-rich Nasdaq gained 0.98 per cent.
“European markets have soared today as investors gorged themselves on the prospect of unlimited free cash from the Federal Reserve over the coming months as well as central banks around the world,” said Michael Hewson, Senior Market Analyst at CMC Markets UK.
“Given the actions of the Fed yesterday evening, it is highly likely the ECB could well follow suit as it becomes apparent the European economic data also continues to disappoint and if Spanish yields start to rise again,” he said.
In foreign exchange deals, the euro jumped to $1.3137, after hitting a four-month high of $1.3169, from $1.2986 in New York on Thursday.
Analysts said the euro was being buoyed by a flight away from the dollar on expectations of higher US inflation caused by the added stimulus, and by receding worries over the eurozone debt crisis.
“The easing of eurozone sovereign debt tensions, which were helping to unwind safe haven demand for the US dollar, has provided the Fed with an opportune time to drive down the value of the US dollar through restarting the printing presses,” said Lee Hardman, currency expert at The Bank of Tokyo-Mitsubishi UFJ in London.
The Fed said it would unleash a huge, open-ended bond-buying programme aimed at jump-starting growth and boosting jobs in the world’s largest economy.
After a two-day meeting, the policy committee of the central bank said it would start a third programme to purchase $40 billion a month in mortgage-backed bonds, known as quantitative easing (QE3).
The effect should spill through to the broader economy, pushing up the prices of homes, stocks, and other assets that, the Fed hopes, will make Americans feel more financially comfortable and begin spending.
On the secondary sovereign bond markets, Italy’s 10-year borrowing cost briefly dipped below five per cent before ending the day at 5.017 per cent from 5.013 on Thursday, while for Spain it rose to 5.785 per cent from 5.630 per cent.
Elsewhere yesterday, shares in European aerospace group EADS were volatile amid scepticism about a proposal for the firm to tie up with British defence group BAE Systems.
Shares in the European Aeronautic Defence and Space Company, which controls the maker of Airbus airliners, stabilised yesterday after plunging nearly 6.0 percent on Wednesday and by slightly more than ten per cent on Thursday.
EADS shares ended Friday with a gain of 0.16 per cent to €25.31.
In London, the price of shares in BAE Systems gained 2.08 per cent to 344.1 pence.