European stocks climbed for a third straight week after the US Federal Reserve unexpectedly refrained from reducing its monthly bond purchases and former US Treasury secretary Larry Summers withdrew from consideration as chairman of the central bank.
The STOXX Europe 600 Index advanced 0.9 percent to 314.2 this week. The equity gauge has surged 5.7 percent this month, putting it on course for the biggest monthly gain in almost two years. The measure has climbed 12 percent this year, as the euro area emerged from recession and central banks pledged to keep borrowing costs low to support the global economy.
“The lack of tapering was a real surprise,” Philip Dicken, head of European equities at Threadneedle Asset Management in London, said by phone. “It signals that if the Fed is at all worried about growth, they will not use tapering if it will choke off that growth. It’s another net positive for European equities, where life is getting incrementally better.”
The STOXX 600 climbed to its highest level since June 2008 on Thursday, a day after the Fed said it needed to see more evidence of lasting improvement in the US economy before slowing bond purchases. Forty-four of 64 economists surveyed by Bloomberg before the decision had predicted that the central bank would start tapering stimulus measures this month.
The Fed repeated guidance that its target interest rate would remain low for at least as long as unemployment exceeds 6.5 percent, and the outlook for inflation remains no higher than 2.5 percent.
Stocks worldwide also rallied this week after Summers withdrew from the running to replace Bernanke, paving the way for Fed Vice Chairperson Janet Yellen, who investors say will favor slower stimulus reduction.
The Bank of England released this week the minutes from its Sept. 4 and 5 meeting, which showed that officials unanimously concluded there was no need for additional stimulus given the improving outlook for the British economy.
The VSTOXX Index, a measure of expected volatility in euro-area stocks, slid 8.8 percent to 16.76 this week, the lowest level in a month. National benchmark indices rose in 16 of the 18 Western European markets. Germany’s DAX added 2 percent, France’s CAC 40 rose 2.2 percent and the UK’s FTSE 100 gained 0.2 percent.