By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets rallied on
Thursday after European Central Bank President Mario Draghi
reiterated that the bank has plenty of tools left to ease further
if demanded by economic conditions.
Upbeat earnings reports also helped lift sentiment, including
results from Daimler AG, Vodafone Group PLC and Akzo Nobel NV.
Climbing for a second day, the Stoxx Europe 600 index rose 1.5%
to end at 322.77, the highest closing level in a week.
Among notable movers, shares of Daimler added 2.6% after the
German car maker said it closed out 2013 with record earnings and
gave an upbeat outlook for 2014.
Shares of Vodafone (VOD) picked up 3.7% after the telecoms firm
reported a narrower-than-expected fall in third-quarter
revenue.
Akzo Nobel NV (AKZOY) rallied 6.5% after the Dutch paint and
coatings firm said it will continue to work on cutting costs to
offset expected soft demand in the year ahead.
Danske Bank AS climbed 3.7% after the Danish lender proposed
paying a dividend for the first time in five years.
On a more downbeat note, shares of H. Lundbeck AS dropped 2.9%
after the pharmaceutical firm trimmed its 2014 guidance as it
posted a sharp drop in fourth-quarter profit.
All eyes on the ECB
More broadly, central-bank meetings were the focal point for
Thursday's action. The European Central Bank left its main
refinancing rate unchanged at a record low of 0.25%, leaving some
analysts surprised. Economists were split ahead of the rate call as
to whether the ECB would lower rates even further in response to
low inflation and tighter money-market conditions.
Some argued a rate cut would be premature, while others believed
the central bank was keen to be ahead of the curve on inflation and
therefore would ease policy further. During the following news
conference ECB President Mario Draghi addressed the inflation
concerns, but indicated he wasn't worried about deflation. Instead,
he explained that the low inflation partly currently is due to low
energy and food prices, which benefit consumers and usually don't
turn into deflation.
He stressed, however, that the ECB remains ready to take
"decisive action" if needed.
"Our reading is that the [Governing Council] is close to
deploying another instrument, possibly next month if the ECB's
medium-term inflation projections are sufficiently weak or if money
market tensions do not subside sufficiently," said Philip Shaw,
chief economist at Investec Securities, on a note.
He argued that further action won't necessarily be a rate cut,
but could include nonstandard measures.
Atif Latif, director of trading at Guardian Stockbrokers, also
said the reassurance from Draghi was enough to encourage investors
to take on more risk after a steep decline in the beginning of the
month.
Earlier in the day, the Bank of England left the size of its
bond-buying program unchanged and held its key lending rate at a
record low of 0.5%, where it has stood since March 2009. The
central bank's Monetary Policy Committee left its asset purchases,
the centerpiece of its quantitative-easing strategy, at 375 billion
pounds ($611 billion).
After the decisions, most country-specific indexes closed in
positive territory. The U.K.'s FTSE 100 index gained 1.6% to
6,558.28, while France's CAC 40 index put on 1.7% to 4,188.10.
Germany's DAX 30 index rose 1.5% to 9,256.58.
Shares of AstraZeneca PLC (AZN) dropped 1.6% in London after the
drug maker said it swung to a loss in the fourth quarter, as it
suffered a $1.76 billion impairment charge due to disappointing
sales of its diabetes drug Bydureon.
Outside the major indexes, shares of Imagination Technologies
Group PLC rallied 14% after the technology firm said it extended
its multiyear licensing agreement with Apple Inc. (AAPL).
Volvo AB advanced 4.6% after the truck maker said it will cut
4,400 jobs in 2014 as it reported a slide in fourth-quarter
profit.
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