UPDATE 1-European shares hit 5-year high as Summers exits Fed race

Mon Sep 16, 2013 12:22pm EDT

* FTSEurofirst 300 up 0.7 percent, German DAX at record

* Summers withdraws from Fed race, dove Yellen new favourite

* Airlines advance, oil price drops on Syria deal

By Alistair Smout

LONDON, Sept 16 (Reuters) - European stocks hit five-year highs on Monday after news that Lawrence Summers has pulled out of the race to lead the U.S. Federal Reserve, while an international deal over Syria also boosted risk appetite.

The FTSEurofirst 300 hit an intraday high at 1,262.25, its highest level since mid-2008, while Germany's DAX hit 8626.11 - an all-time high.

Investors took the view that Summers' decision meant a more gradual approach to policy tightening, as he had been seen as less supportive of the bank's monetary stimulus programme than the other main candidate, Janet Yellen.

However, the news on Summers is seen as having little bearing on a Fed meeting this week where the bank is expected to start reining in its bond-buying.

Demand for equities was also boosted by an international deal to destroy Syria's chemical arsenal, which put off a U.S.-led attack against the country and allayed concerns of a broader conflict in the oil-producing Middle East.

"The market has moved on two reasons. There's a relief rally on the latest Syrian news, but also Yellen is seen to be more dovish and pro-quantitative easing... Consequently it's good for the equity markets," said James Butterfill, global equity strategist at Coutts.

The FTSEurofirst closed up 0.7 percent at 1,258.42, a five year closing high, while the Dax closed at an all-time closing high, up 1.2 percent to 8,613.

Both indexes ascended beyond their May peaks to post the new highs. In the case of the DAX, the top German index has added 3.9 percent since the beginning of last week.

Easing supply concerns pushed down oil prices, with Brent crude for delivery in November down 1.5 percent, while airline stocks notched up gains, led by Air France and IAG up 5.5 percent and 3.3 percent respectively.

"If Syria really is resolved as it appears that it might be, there's a good chance that we could see energy prices come back significantly. You could even see (Brent) pull back to the $100 a barrel mark," Matt Basi, sales trader at CMC Markets, said.

"At that price point I think you'd really start to see airlines being able to hedge their risk quite effectively and just lock in long-term contracts at those rates."

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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