European stocks follow Wall Street, hit highest since 2008 crash.

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European stock markets rose to their highest since the 2008 financial crisis on Wednesday, helped by signs the US economy is improving and expectations of more pledges of support for growth from major central banks.

The European Central Bank, the Bank of England and the Bank of Japan are all expected to stick to ultra-easy monetary policy at meetings this week, following on from reassurances by US Federal Reserve officials that their stimulus programme remains in place.

Analysts even see some scope for fresh action in Europe on Thursday, giving a 40 per cent chance for more bond buying from the Bank of England and a 10 per cent likelihood of an interest rate cut from the ECB.
That drove Wall Street’s Dow Jones industrial index to an all-time high on Tuesday and indices of both world and European shares inched up further on Wednesday.

“It’s panic buying,” said Nick Xanders, who heads up European equity strategy at BTIG. ”

At this stage everyone wants to buy it, everyone wants to get involved and everyone is scared of underperforming,” Mr Xanders said.

The pan-European FTSEurofirst 300 gained 0.2 per cent with London’s FTSE 100 Paris’s CAC-40 inching up 0.3-0.4 per cent and Frankfurt’s DAX surging 0.9 per cent.

“Indexes are breaking above big resistance levels and this is creating room on the upside,” said Lionel Jardin, head of institutional sales at Assya Capital, in Paris.

“The sentiment is that central banks are going to remain very accommodative for a while, and at the same time companies are in really good shape, with strong cashflows,” Mr Jardin added.

Still, with the ECB’s meeting in view and worries over the euro zone’s debt crisis again on the rise due to Italy’s political deadlock, German government bonds recovered some poise after a selloff in the previous session.

The Bund future was flat on the day at 145.03 after dropping by around half a point on Tuesday.
In the currency market, the euro was also steady at $1.3048 as traders waited to see whether the recent disappointing economic data and ongoing debt worries will be enough to see the ECB surprise consensus and cut rates on Thursday.

Italian centre-left leader Bersani – the man who won most votes in last week’s fractured election – also presents his policy plans to his PD party later. It could be significant if he produces enough for populist leader Beppe Grillo to support on an ad hoc basis.

“There’s reasonable downside to the euro. The situation in Italy is still uncertain,” said Barclays currency strategist Bill Diviney.

“Although we don’t expect any big changes to president Draghi’s stance but he’s going to stay fairly dovish given uncertainties,” he added.

Copyright @ Thomson Reuters 2013

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