European stocks rose to the highest level since July last year, extending gains for an 11th week, as investors anticipated policymakers would stimulate the euro-area economy and German growth retreated less than forecast.
The STOXX 600 rose 1.1 percent to 272.83 this week for its longest streak of gains since 2006. The benchmark gauge has climbed 17 percent since June 4 as euro-area policymakers eased repayment terms for Spanish banks and optimism for new stimulus measures grew.
German Chancellor Angela Merkel, speaking in Canada on Thursday, backed the European Central Bank’s insistence on conditions for helping to reduce borrowing costs in indebted countries, saying Germany is “in line” with the central bank’s approach to defend the euro.
“On many of these issues we feel we’re on the right track,” Merkel told reporters in Ottawa. Euro-area policy makers “feel committed to do everything we can to maintain the common currency.”
Germany is facing calls from Italy and Spain to pool debt to bring down bond yields, from Greece to back an easing of its austerity timetable and from the ECB for politicians to take the lead in fighting the sovereign-debt crisis. Merkel also faces domestic pressure from her coalition partners to refuse any more aid for Greece.
Germany’s economic growth slowed less in the second quarter than economists had forecast, as exports and household spending helped to fend off the impact of the debt crisis on Europe’s largest economy.
GDP rose 0.3 percent from the first quarter, the Federal Statistics Office said on Tuesday. Economists had predicted a 0.2 percent increase.
France avoided a contraction as GDP was unchanged in the quarter, beating the 0.1 percent decline predicted by economists. The euro-area economy as a whole shrank 0.2 percent in the three months to the end of June, matching estimates.
Hedge funds that base investment decisions on economic trends are unwinding bets against European stocks at the fastest pace in three years, speculating policymakers will step up the fight against the debt crisis.
The Euro STOXX 50 is up more than 12 percent in three weeks, twice the gain of the MSCI All-Country World Index, even as the euro-area economy is forecast to slide into recession.
National benchmark indexes rose in all of the 18 western European markets except Ireland. The UK’s FTSE 100 gained 0.1 percent, while Germany’s DAX jumped 1.4 percent. France’s CAC 40 added 1.5 percent.
Of the 273 companies listed on the STOXX 600 that have reported quarterly profit this earnings season, 134 have exceeded analysts’ projections, while 137 have missed them, according to data compiled by Bloomberg.