By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets rose on Monday
with investors hoping the U.S. Federal Reserve will refrain from
making any changes to its monetary policy when it meets later this
week.
The Stoxx Europe 600 index gained 0.7% to close at 293.25 after
posting a fourth straight week of losses on Friday.
The index has posted a 4.9% year-to-date gain as aggressive
easing measures from central banks largely have offset worries
about sluggish European growth. Concerns that central banks will
reduce their liquidity injections, however, have knocked off 5%
from the pan-European index over the past month.
"The first half of the week is going to be all about the Fed
meeting, because there isn't really anything else than central-bank
policy that markets focus on right now," said Peter Dixon,
strategist at Commerzbank in London.
Among notable movers on Monday, shares of Royal Philips NV (PHG)
added 2.4% after Deutsche Bank lifted the electronics firm to buy
from hold.
In Milan, shares of Saipem SpA sank 29% after the
oil-field-services firm late Friday cut its 2013 outlook because of
escalating difficulties in Algeria. The Italian company now expects
a full-year loss between 300 million euros ($400 million) and
EUR350 million, down from an earlier forecast of profit of around
EUR450 million.
It's all about the Fed
Investors are wondering what the Federal Reserve may say about
any potential tapering of its aggressive bond-buying program after
the central bank concludes its two-day meeting Wednesday.
Most analysts expect the central bank to keep interest rates low
and maintain its $85-billion-a-month asset purchases, but they
don't rule out the possibility of a reduction in bond buying later
in the year.
"The worst thing than can happen, and this is the very worst
case, is that they say they won't buy more bonds. But that won't
happen," said Dixon at Commerzbank. "The more realistic option is
that they say they'll start tapering over the next few months. But
the a lack of inflation justifies ongoing Fed action and until you
see higher inflation combined with a decline in unemployment, there
is no reason to taper."
"The economy isn't strong enough yet [to start tapering QE]. The
data have been very mixed. We had okay payrolls, but unemployment
rising. You have manufacturing PMIs that are still weak. Looking at
all these factors, this is not the time you want to pull the rug
away too early, but we're getting there, and the economy does look
stronger," he added.
Global stock markets climbed to multiyear highs in May, boosted
by central-bank liquidity, but comments from Fed Chairman Ben
Bernanke about potentially tapering bond purchases in coming months
sparked a selloff.
Bernanke stressed, however, that any tapering depends on
improvement in data, leaving investors to closely monitor data
releases from the U.S. On Monday, the Empire State index improved a
bit to 7.8 in June from negative 1.4 in the prior month, although
the underlying details of the report remained weak.
Additionally, a gauge of confidence among home builders jumped
in June, hitting the highest level since 2006.
By the close of European markets, U.S. stocks traded sharply
higher.
Stocks in Asia closed mostly higher, with the Japanese Nikkei
225 index rallying 2.7% on the back of a weaker yen.
Movers
Back in Europe, shares of Compagnie Financière Richemont SA
(CFRUY) gained 1.5% after HSBC lifted the luxury-goods firm to
overweight from neutral.
Oil firms were also on the rise after J.P. Morgan Cazenove
lifted the sector to overweight from neutral and mentioned BP PLC
(BP) and Total SA (TOT) as some of its top picks. Shares of BP
added 1% in London and Total gained 2.3% in Paris. Oil prices were
higher.
Among country-specific indexes, Germany's DAX 30 index added
1.1% to 8,215.73 and France's CAC 40 index gained 1.5% to 3,863.66.
The U.K.'s FTSE 100 index gained 0.4% to 6,330.49.
Outside the main indexes, shares of Telefonica SA (TEF) climbed
2.4%. The Spanish telecom firm said it hadn't received any takeover
interest from AT&T Inc. (T) following a report that the U.S.
telecom giant had informed the Spanish government about a potential
acquisition.
Hannover Re SE climbed 3.3% after the reinsurance firm said the
recent floodwaters in Germany, Austria and the Czech Republic don't
pose a threat to the firm's net income for 2013.
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