European shares rose yesterday after the European Central Bank cut interest rates, and investors said the ECB’s readiness to act further to boost growth would support equities in the near term.

The pan-European FTSEurofirst 300 index closed up 0.4 per cent at 1,206.53 points, close to an intraday peak of 1,209.09 points reached on April 30 which was its highest level in nearly five years.

The eurozone’s blue-chip Euro STOXX 50 index rose 0.3 per cent to 2,718.90 points. Gains were limited as the ECB rate cut, the first in 10 months, had been widely expected but the ECB held out the possibility of further action to support the subdued economy.

Lower borrowing costs should help euro zone companies export and encourage them to borrow in order to expand. Germany’s DAX, which includes some of the biggest German exporters, led regional stock markets with a 0.6 per cent rise to 7,961.71.

Chipmaker Infineon led both the German and pan-European index with a 9.9 per cent gain after it raised its 2013 outlook.

JN Financial investment manager Ed Smyth said he had bought into the DAX last month at 7,470 points, around the mid-April lows, and was targeting a rise to 8,000 points. The DAX is currently some two per cent off its record high, set in July 2007.

“(ECB President Mario) Draghi is making an attempt to get on the front foot and provide liquidity. This will be positive for equities and could push markets to fresh all-time highs,” he said. European equities rallied in the second half of 2012 after Draghi pledged to do “whatever it takes” to protect the euro currency from the effects of the region’s debt crisis.

The FTSEurofirst 300 has risen six per cent since the start of 2013, while the Euro STOXX 50 has gained three per cent.

Draghi yesterday added that the ECB was technically ready for negative deposit rates, and this hit both the euro on foreign exchange markets and yields on German bunds.

One of the effects of this was to drive more investors out of bonds and into equities, which are offering better returns.

Hendrik Klein, who heads Swiss high-frequency trading at asset management firm Da Vinci Invest AG, said he had “shorted” German bund futures this week on expectations they would be hit by the ECB rate cut, and favoured European equities.

“We stay bullish on European equities for the medium and long term,” he said.