European stocks gained and the euro rose against the dollar today as Germany approved an expansion of the euro zone rescue fund and US economic data was better than expected.
But analysts warned that the single currency could be vulnerable to selling as investors book profits before month-end.
German chancellor Angela Merkel's coalition party voted to enhance the euro zone stability fund's powers, joining 10 other countries that have approved an expansion that would increase the euro zone's firepower to help debt-ridden countries.
The Stoxx Europe 600 Index climbed 1.3 per cent to 230.39 at 2.58pm in London, having earlier dropped as much as 0.7 per cent. The measure is heading for its worst quarter since 2008, having fallen 16 per cent amid concern global economic growth is slowing and policy makers are struggling to contain the European debt crisis.
The gauge has dropped 3 per cent this month following a 10 per cent slump in August.
US reports showed claims for unemployment benefits fell more than forecast last week and the economy grew faster than estimated in the second quarter.
BNP Paribas SA and UBS AG led gains in banking shares, adding more than 5 per cent, as German lawmakers approved an expansion of the euro-area bailout fund. Hennes and Mauritz AB surged 6.1 per cent after Europe's second-largest clothing retailer reported earnings that beat analyst estimates.
"US data is providing a positive surprise to support a bounce in stocks," said Daniel Weston, a portfolio adviser at Schroeder Equities GmbH in Munich. "Europe is showing glimmers of hope for political certainty."
Hopes that policymakers are finally acting to prevent the debt crisis from worsening have supported the euro in the past few sessions, lifting it off an eight-month low of $1.3360 set on Monday. But traders cautioned the euro's rally may lose steam ahead of offers suspected around $1.3680-1.3700.
"There's been a little bit of a relief rally given that there was such strong support for the measure in Germany," said Joe Manimbo, senior market analyst at Travelex Global Payments in Washington. "But being month end, the euro might be a sell up here at these higher levels."
US stocks rallied, with the Dow extending early gains to rise 2 per cent as economic data was stronger than forecast.
The Dow Jones industrial average was up 220.28 points, or 2 per cent, at 11,231.18. The Standard & Poor's 500 Index was up 22.33 points, or 1.94 per cent, at 1,173.39.
The Nasdaq Composite Index was up 45.32 points, or 1.82 per cent, at 2,536.90.
Reuters
