European stocks gained for the second month amid optimism earnings will rise as economies recover. Royal Philips Electronics NV, Deutsche Bank AG and Aegon NV led the advance.
"We are seeing good signs that the recovery is starting," said Carsten Gerlinger, who oversees 800 million euros (US$796 million) at DZ International in Luxembourg and is considering buying shares in Siemens AG and Vodafone Group Plc. The Dow Jones Stoxx 50 Index may add 10 percent before the year ends, he said.
The index rose 3.9 percent in November and had its first back-to-back monthly gains since November-December 2001. The 15 percent advance so far this quarter is the best two-month performance since the end of 1999.
Stocks were helped this week by surveys showing a gain in confidence among French manufacturers and UK consumers. Reports that manufacturing in the Chicago area rose in November and new claims for US unemployment benefits fell last week further fueled speculation that demand for products may be rising.
Europe's 300 biggest companies generate about a fifth of their sales in the US.
Earlier this month, companies including Kuoni Reisen Holding AG, Switzerland's largest travel company, and ABN Amro Holding NV, the largest Dutch bank, said cost cuts helped them beat analysts' forecasts.
Philips, Europe's largest maker of consumer electronics, surged 22 percent in November. Deutsche Bank, the region's biggest lender, gained 14 percent and Aegon, the second-largest Dutch insurer, climbed 19 percent.
Some investors question whether there has been enough evidence of growth to justify recent share-price gains.
The Stoxx 50 declined 0.5 percent to 2,661.51, led by France Telecom SA and Munich Re as analysts cut their ratings.
"Valuations are starting to look a bit high," said Stuart O'Gorman, who helps manage US$900 million in technology stocks at Henderson Global Investors. "You need quite a strong recovery to justify some of these prices."
O'Gorman may cut his stock holdings if the equity market rally extends into next year.
France Telecom, whose shares have more than doubled this quarter, slipped 4.3 percent to 18 euros. The former French monopoly was downgraded to "underweight" from "equal-weight" by Morgan Stanley, which called the current price "unreasonable."
Munich Re shed 3.1 percent to 140 euros as UBS Warburg cut its rating to "hold" from "buy," arguing the stock has little room to gain. The shares have advanced 32 percent since the end of September.
Nokia Oyj dropped 2.3 percent to 19.40 euros, trimming its gain this quarter to 44 percent. The shares reached a seven-month high yesterday. Analysts' profit expectations for the world's largest handset maker may be too optimistic, according to a note today from Lehman Brothers Holdings Inc.
The Stoxx technology, insurance and telecommunications indexes have each surged more than a third since the end of September.
ABB Ltd and Cie. de Saint-Gobain SA rose today on optimism asbestos-related costs may be limited, as Fresenius Medical Care AG neared an agreement to settle US claims.
Fresenius Medical, the world's leading dialysis provider, climbed 24 percent to 42.98 euros after agreeing to settle asbestos claims in the US for US$15 million.
"This is very good news -- we'd heard talk of sums as much as a billion euros," said Michael Kapler, who helps manage 13 billion euros in investments at Trinkaus Capital Management in Dusseldorf, Germany.