European shares hit near 6-year high as ECB hints at June action

Thu May 8, 2014 11:03am EDT

* FTSEurofirst 300 up 0.9 pct, hits highest level since June 2008

* Peripheral banks rally as ECB opens door to June move

* Metro and ProSieben rise after updates

By Francesco Canepa

LONDON, May 8 (Reuters) - A key European equity index surged to near six-year highs on Thursday, led by Italian and Spanish banks, after the European Central Bank opened the door to more stimulus measures in June.

The pan-European FTSEurofirst 300 index hit its highest level since June 2008 on speculation the ECB may cut interest rates next month, paving the way for further steps such as an asset-purchase programme.

Italian banks, which own large amounts of their government's debt, rallied 3 percent on the prospect of lower borrowing costs if the ECB cuts rates or starts buying sovereign or corporate bonds.

The ECB, which is trying to counter the risk of excessively low inflation, kept its key rate on hold on Thursday. But president Mario Draghi said it "was comfortable" with the idea of acting in June, after the bank's staff forecasts are published early in the month.

"These markets are rallying on the idea that ... he's ready to act. Having been quite silent, he has now shown his cards," Alan Higgins, chief investment officer at Coutts, said. "First a rate cut, which should be very modest, then some kind of QE. The fact that they're looking at it is enough to get the market very excited."

An asset-purchase programme would lower borrowing costs where they are still elevated, such as in southern Europe. That would help companies struggling with high debt and meagre profits, such as Italian and Spanish banks or telecoms group Telecom Italia, which rose 1.2 percent.

The FTSEurofirst 300 was up 0.9 percent at 1,356.42 points at 1441 GMT, having hit an intra-day high of 1,359.07 points. The euro zone's blue-chip Euro STOXX 50 index rose 1.1 percent to 3,193.74 points.

RESULTS BOOST

Some reassuring updates companies such as the German supermarket chain Metro helped underpin stocks in what has been a laucklustre reporting season so far.

Metro AG rallied 3.3 percent as better-than-expected profits at its cash and carry business offset a weaker contribution from the Media-Saturn division.

German media group ProSiebenSat.1 rose 5.7 percent after posting a 9.5 percent increase in first-quarter core earnings.

According to Thomson Reuters StarMine, 50 percent of the companies on the STOXX Europe 600 index that have reported quarterly earnings through May 7 have missed estimates, the highest proportion since the second quarter of 2011.

Also helping market sentiment, data on Thursday showed that China's exports and imports returned to slight growth in April, sending a positive signal for the world's second-biggest economy after a weaker-than-expected start to 2014.

Europe bourses in 2014: link.reuters.com/pap87v

Asset performance in 2014: link.reuters.com/gap87v

Today's European research round-up (Additional reporting by Sudip Kar-Gupta; Editing by Larry King)

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