European shares rally as Fed keeps stimulus cut limited

Thu Dec 19, 2013 10:57am EST

* FTSEurofirst 300 and Euro STOXX 50 up more than 1.5 percent

* Fed's restraint in trimming stimulus boosts sentiment on stocks

* Rise in U.S. jobless claims takes shine off rally

By Francesco Canepa

LONDON, Dec 19 (Reuters) - European shares rallied on Thursday after the Federal Reserve unveiled plans to phase out its stimulus plan more gently than many had expected in the face of a stronger economy, although weak U.S. jobs data took the shine off the rally in late trade.

The Fed trimmed the pace of its monthly asset purchases only modestly while saying the U.S. recovery was gathering momentum. The announcement late on Wednesday triggered a rally in global stocks, which tend to respond fastest to growth indicators.

However, European indexes trimmed their gains in the afternoon after a mixed set of U.S. data including a sharp rise in the number of Americans filing new claims for unemployment benefits.

"What this tells us is that the markets are still nervous," said Joost van Leenders, investment specialist for allocation and strategy at BNP-Paribas Investment Partners.

"(The Fed's decision to cut stimulus) was interpreted as positive because it was a sort of confidence vote by the Fed. Markets need confirmation of these improvements."

At 1547 GMT, the pan-European FTSEurofirst 300 was up 1.5 percent at 1,277.66 points after rising as far as 1,280.51, the highest since early December. The index is up nearly 13 percent so far this year.

The Euro STOXX 50 was up 1.6 percent, at 3,022.72 points.

The Fed tempered its stimulus reduction by suggesting its key interest rate would stay at rock bottom even longer than previously promised.

"As the Fed announced the taper, it also pushed out expectations for when it is going to lift the policy rate," said Daniel McCormack, strategist at Macquarie.

"None of this is a negative. Equities tend to outperform in tightening cycles ... (because) growth and demand is strong. This all means you want to be in cyclicals such as industrials, technology, consumer discretionary and financials."

Thursday's rally was led by cyclicals, with travel & leisure , media, financial services and insurance stocks all up around 2 percent.

Some 535 of the 600 stocks in the STOXX Europe 600 index were in positive territory, making this the broadest rise for the index since October, Thomson Reuters Datastream data showed.

They were led by Italy's biggest commercial television broadcaster, Mediaset, up 15 percent after saying it is considering merging its pay-TV operations in its core Italian and Spanish markets, paving the way for a possible sale of a stake in the new company.

Analysts said they would welcome the entry of a new partner, which would help the group shoulder the growing cost of sports TV rights. Italian broker Banca Akros raised its recommendation on the stock to "hold" from "sell".

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