European shares hit a three-week closing high yesterday, rising for the fifth straight session, as policymakers and economic data calmed speculation that the US central bank could retreat from its easy money policy.
The FTSEurofirst 300 index of top European shares closed 0.4 per cent higher at 1,026.05 points, the highest closing level since February 2. The index has risen four per cent this week, its best weekly gain since late July 2009.
The US Federal Reserve raised the discount rate to 0.75 per cent from 0.5 per cent, but officials moved to calm speculation that a surprise rise in its emergency lending rate could bring forward broader policy tightening, saying borrowing costs in the economy would stay low.
European banks recovered some earlier losses, with Barclays, HSBC, Société Générale, BNP Paribas and Deutsche Bank up 1.3 to 1.9 per cent.
Data showed US consumer prices rose less than expected in January, supporting the Fed's contention it would keep its benchmark interest rate low. "The inflation numbers came in not as high as people were expecting so there is less chances of the economy overheating quickly," said Arifa Sheikh-Usmani, equity trader at Spreadex.
Food producers were strong, led higher by a 2.4 per cent rise in Nestle after it said it is aiming for higher underlying sales growth this year after a robust performance in Asia and the Americas helped it beat forecasts for 2009.
Within the sector, Danone, Associated British Foods and Unilever rose one to 2.7 per cent. Shire led drugmakers higher, rising 4.6 per cent after it forecast a return to revenue and earnings growth in 2010 after reporting better than expected 2009 results. AstraZeneca, Sanofi-Aventis and Novartis rose 0.5 to 1.5 percent.
Across Europe the FTSE 100, Germany's DAX and France's CAC 40 rose 0.6 to 0.7 per cent. Miners fell, weighed by lower metals prices, as the dollar touched an eight-month high against a basket of currencies after the Fed's decision to raise its discount rate.
Eurasian Natural Resources, Kazakhmys Rio Tinto and Vedanta Resources shed 0.2 to 1.1 per cent, while Anglo American lost 1.8 per cent after it didn't reinstate a dividend following annual results.
Among individual movers, French defence electronics company Thales slumped 12.1 per cent after it forecast lower new orders this year and said it plunged into the red last year due to write downs for money-losing deals.
Carrefour lost two per cent after posting a plunge in profits due to asset write downs and a weak performance in France, and expects a tough year ahead. On the macroeconomic front, the eurozone's manufacturing sector had its best month in 2-1/2 years in February helped by German strength but the dominant service sector expanded at a slower pace than expected, the Markit's Flash Purchasing Managers' Index Composite index showed.