By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stocks climbed as investors
showed greater tolerance for risk Thursday, after U.S. policy
makers expressed optimism that they could reach a deal to avert the
so-called fiscal cliff.
The Stoxx Europe 600 index rallied 1.2% to close at 276.31, the
highest level since early June last year.
"Financial markets are trading at the mercy of the fiscal cliff
at the moment and very choppy sessions should be expected ahead of
Christmas," analysts at Danske Bank said in a note.
European markets were buoyed by Wednesday comments from U.S.
politicians that calmed nerves about the fiscal cliff -- the
hundreds of billions in tax hikes and across-the-board spending
cuts that would take effect in 2013, jeopardizing prospects for the
largest global economy.
President Barack Obama said late Wednesday he hoped to resolve
the fiscal-cliff issues before Christmas, while House Speaker John
Boehner told reporters he was hopeful that Republicans could reach
a deal with the White House "sooner rather than later."
After European markets closed on Thursday, however, Boehner made
new comments, saying there has been no "substantive progress" in
the fiscal-cliff negotiations. The comments caused U.S. stocks to
give up most of their gains.
"It has to be emphasized that there are in fact few indications
that the two sides are moving closer to each other on important
issues like taxes," the Danske Bank analysts wrote.
Earlier this week, financial markets sold off after Senate
Majority Leader Harry Reid expressed disappointment with the state
of negotiations.
Victoria Clarke, an economist at Investec Securities, said that
worries politicians won't reach a deal in time "is starting to have
an impact on investors already." "The Beige Book showed yesterday
that the uncertainty is weighing on certain investments and we will
see that escalate as we get closer to the end of the year without a
deal," she said.
In U.S. economic news, pending homes sales climbed 5.2% in
October, while the U.S. economy grew by 2.7% in the third quarter,
up from a previous estimate of 2%.
On the data front Thursday in Europe, numbers for Germans
without a job rose by 5,000 in November, well below an increase of
18,000 expected by analysts, according to FactSet. The jobless rate
in the biggest European economy stood at 6.9%, as expected.
Movers
In London, shares of Invensys PLC jumped 8.9%. Late Wednesday,
the software firm said it sold its rail-signaling unit to Germany's
Siemens AG (SI) for 1.74 billion pounds ($2.78 billion). Barclays
raised its rating on Invensys to overweight from equal-weight
following the announcement.
Shares of Siemens gained 0.3% in Frankfurt.
Pointing in the other direction, shares of Electricite de France
SA lost 1%, after a Paris court reportedly ruled that the
electric-utility firm has overcharged households to the tune of 8.8
billion since 2009. A representative from EDF said the company is
"unaware of the possibility of refunds."
Banks were among the best performers in Europe, with shares of
Spain's Banco Popular Español SA rallying 5% and Banco Santander
SA (SAN) rising 2.4%. The IBEX 35 index jumped 1.7% to 7,973.70 in
Madrid.
In Germany, shares of Commerzbank AG gained 2.6%, while Deutsche
Bank AG (DB) added 1.6%.
Shares of Volkswagen AG rose 1.3% to 165.80, after Morgan
Stanley lifted its target price on the auto maker to 205 from 185
and reiterated its overweight recommendation.
The DAX 30 index rose 0.8% to 7,400.96.
Among French stocks, shares of GDF Suez SA advanced 2.8%, after
Credit Suisse raised its rating on the utility firm to neutral from
underperform.
The CAC 40 index rose 1.5% to 3,568.88.
And in the U.K., shares of Pennon Group PLC rallied 4.3%. The
water- and waste-management firm reported a 3.4% increase in
first-half pretax profit and lifted its dividend.
Mining shares also were on the rise in London, tracking gains
for most commodity prices. BHP Billiton PLC (BHP) rose 1.9%.
Making a bigger move to the upside, shares of Rio Tinto PLC
(RIO) jumped 5.1% as the company disclosed plans for more than $7
billion in spending cuts and savings.
Overall, London's FTSE 100 index closed 1.2% higher at
5,870.30.
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