Euro zone shares post biggest two-day rise in 14 months

Euro zone blue chips recorded their biggest two-day gain in over a year on Tuesday, boosted by the prospect of further stimulus from the European Central Bank (ECB) and by strong gains for some steelmakers.

The euro zone’s Euro STOXX 50 index closed 1 per cent higher, posting its steepest two-day rise since June 2013 at 3.2 per cent.

Shares on both sides of the Atlantic have been boosted by comments from ECB President Mario Draghi, who is seen as having opened the door to a large-scale asset-buying scheme known as quantitative easing, to pump cash into the financial system and revive inflation.

“Draghi’s readiness to do more is providing the necessary boost for equity indexes,” Ashraf Laidi, chief global strategist at City Index, said.

“Buying on the dips does remain the path of least resistance in the absence of any destabilising factor.”

A two-year rally in European stocks, fuelled by central banks’ largesse, had started lose steam in June as euro zone data started to deteriorate and investors fretted over a possible tightening in US monetary policy.

Speaking on Friday at a global central banking conference in the United States, Draghi said the ECB was prepared to respond with all its “available” tools should inflation drop further.

Indexes in economies such as Italy, Spain and Portugal, suffering from high public debt and low inflation, led gains with rises of between 1.3 per cent and 1.7 per cent.

European bourses extended their gains after a positive start on Wall Street, where the globally tracked S&P 500 index rose to a new high, sending a bullish signal for equities at large.

Steelmakers ArcelorMittal, Salzgitter and Voestalpine were among top gainers in Europe after analysts at UBS upgraded their shares to "buy" from "sell" in expectation that the trio will benefit from a turnaround in the sector.

The possibility of fresh ECB stimulus also helped the market to take a French government reshuffle in its stride. Paris’s CAC-40 index was up 1.2 per cent, having risen 2.1 per cent the previous day.

France’s Prime Minister Manuel Valls was expected to put together a new pro-reform government on Tuesday, having resigned the previous day after President Francois Hollande’s eviction of rebel ministers who had opposed budgetary rigour.

Reuters