Bulls pin hope on ECB despite negative data

EUROPEAN stocks ended higher yesterday, extending the previous session’s rally as investors’ hopes of further stimulus from central banks overshadowed grim manufacturing data from China and Europe.

The FTSEurofirst 300 index of top European shares ended 0.8 per cent higher at 1,091.61 points, with the index experiencing its lowest trading volumes since last December’s Christmas week, due in part to the fact that Wall Street remained closed for a public holiday. The Eurozone’s blue chip Euro STOXX 50 index added 0.9 per cent, to 2,463.17 points.

The rally was broad based, with French pharma group Sanofi adding 2.2 per cent and Italian lender UniCredit gaining 1.7 per cent.

Despite figures showing the Eurozone manufacturing sector contracted faster than previously thought last month and data from China signalling that the pace of the country’s economic growth will weaken well into the third quarter, investors continued to focus on this week’s European Central Bank policy meeting.

The ECB is expected to unveil details of a plan to buy bonds from Spain and Italy to lower the two countries’ borrowing costs and ease debt.

Yesterday, ECB President Mario Draghi was reported as saying that the purchase of sovereign bonds with a maturity of up to three years by the central bank would not breach EU rules, easing worries about the plan’s potential hurdles.

Despite yesterday’s gains, Francois Chevallier, strategist at Banque Leonardo, warned that equities will struggle to extend their rally started in late July.