European shares extended gains triggered by new European Central Bank measures to boost the region’s recovery into a second day yesterday, with a eurozone blue-chip index reaching a six-year high.

Eurozone peripheral markets outperformed, pushing Madrid’s IBEX up 1.7 per cent and Milan’s FTSE MIB up 1.5 per cent – led by banking stocks such as Banco Santander and Intesa SanPaolo, as investors bet that eurozone banks would most benefit from the ECB’s measures.

The FTSEurofirst 300 index of top European shares ended 0.6 per cent higher at 1,388.48 points, while the euro zone’s blue-chip Euro STOXX 50 index rose 0.8 per cent, ending at 3,294.28 points, a level not seen since 2008.

The Euro STOXX 50 Volatility index, Europe’s main ‘fear gauge’, tumbled to 13.4 – its lowest level since before the financial crisis erupted in 2007.

European stocks started to rise on Thursday after the ECB cut interest rates, launched a series of measures to pump money into the eurozone economy and pledged to do more if needed to fight off the risk of Japan-like deflation.

“It’s a game changer from the ECB, but let’s keep in mind that the impact on the real economy will take six to nine months,” said Christophe Donay, head of strategy at Pictet.

“In the medium term, the decorrelation between the actions of the Fed and the ECB will work in favour of European shares, which remain cheaper than US stocks and are poised to benefit from flow dynamics because global investors are still ‘underweight’ at the moment,” he said.

So far this year, Spain’s IBEX has gained about 12 per cent and Italy’s MIB has risen 17 per cent, strongly outperforming the UK’s FTSE 100, up 1.4 per cent over the same period, and Germany’s DAX, up 4.5 per cent.

“It’s ‘mission accomplished’ for Draghi. Confidence is coming back, investors are unwinding portfolio hedges, sending the volatility index to pre-crisis levels,” said David Thebault, of Global Equities.

The Euro STOXX 50 Volatility index – used to measure the cost of protecting stock holdings against market corrections because it usually moves in the opposite direction to cash equities – sank eight per cent yesterday to 13.4, returning to pre-crisis levels.