European shares rallied to a three-and-a-half-month high yesterday as equities globally rose on signs that a US strike on Syria, with its possible ramifications in the oil-rich Middle East, may be avoided.
Syria accepted a Russian proposal yesterday to give up chemical weapons and win a reprieve from US strikes, easing market nerves about a possible escalation of violence in the region.
European airline stocks were the biggest winners as the news on Syria sent the oil price tumbling by more than $2 a barrel.
The pan-European FTSEurofirst 300 index closed 1.3 per cent higher at 1,243.60 points, a level last seen on May 29 and just above its high on August 14.
“Every side wants to defuse the tension,” said Manish Singh, who helps manage more than $2.5 billion worth of assets at Crossbridge Capital.
“I don’t know whether it will work but for now we go with what we are hearing and seeing.”
The eurozone Euro STOXX 50 index ended up 1.9 per cent at 2,851.40 points in volume 35 per cent higher than the index’s average for the past 90 days, showing high investor participation in the rally. Singh said he expects the Euro STOXX 50 to rise by a further seven to eight per cent by the end of the year. The widely tracked Dax index of German blue chips, however, edged below its August high at the settlement, a sign of low conviction among technical traders. The Dax ended 2.1 per cent higher at 8,446.54 points.
Airlines EasyJet and Lufthansa were the top risers on the FTSEurofirst 300, surging 7.2 per cent and 5.9 per cent, respectively, as the price of crude oil, which affects fuel costs, fell to a two-week low.
Car makers also gained, rising 2.5 per cent, as the bosses of major manufacturers including Volkswagen, PSA Peugeot Citroen, and Ford Europe said sales in Europe appeared to be stabilising after five years of decline, although recovery could be slow.
Shares in Volkswagen led the sector rally, jumping 4.8 per cent in volume of more than two-and-a-half times the stock’s average.
Signs of economic recovery in Europe and the United States have helped the FTSEurofirst 300 rise around 13 per cent since late June.
China data also helped lift shares yesterday, with faster-than-expected growth in industrial output in August providing more evidence that the world’s second-biggest economy is picking up after a prolonged slowdown. The prospects of higher demand from the world’s largest consumer of metals boosted the basic resources sector, which rose 1.8 per cent.