* FTSEurofirst 300 up 0.8 pct, Euro STOXX 50 up 1.3 pct
* EDF's plunge takes 5.8 bln euros off its market value
* Peugeot's short-covering rally continues
By Blaise Robinson
PARIS, June 19 European stocks rallied on
Thursday, with one blue-chip index near a six-year high, after
the U.S. Federal Reserve signalled that over the long run
interest rates would be lower than it had previously indicated.
Bucking the trend, shares in French utility EDF
sank as much as 12 percent after Energy Minister Segolene Royal
said a five percent tariff increase scheduled for Aug. 1 would
not be applied.
The drop - EDF's sharpest one-day slide since its market
listing in 2005 - wiped out 5.8 billion euros ($7.9 billion) in
market value - nearly the price of the latest-generation nuclear
reactor EDF is building in Flamanville, France.
"The market is edgy because these comments are considered as
inconsistent with communication to date and undermine the
confidence in the regulatory visibility on EDF, which should be
entitled to cover its costs," Societe Generale analyst Vincent
At 1405 GMT, the FTSEurofirst 300 index of top
European shares was up 0.8 percent at 1,397.81 points. The euro
zone's blue-chip Euro STOXX 50 index had risen 1.3
percent to 3,319.46 points, a level not seen since mid-2008.
Late on Wednesday, the Federal Reserve said the U.S. economy
continued to recover and hinted it would raise interest rates
slightly more next year than it had projected in March. But the
central bank also lowered long-term projections for interest
rates, evidence of diminished expectations.
"The overall tone was pretty dovish and the forecast for
economic growth seems lower than expected, which is good for
equities. Central banks continue to drive markets big time,"
David Thebault, head of quantitative sales trading at Global
Banking stocks were among the top gainers, with France's
Societe Generale up 1.9 percent, Italy's UniCredit
up 1.3 percent and Spain's Banco Santander up
The Euro STOXX 50 Volatility index, Europe's main
"fear gauge", tumbled 9.4 percent to 12.6 - a level not seen
The index, called VSTOXX, is based on put and call options
on the Euro STOXX 50. It measures the cost of protecting stock
holdings against market corrections and usually moves in the
opposite direction to cash equities.
Around Europe, UK's FTSE 100 index was up 0.8
percent, Germany's DAX index up 0.8 percent, and
France's CAC 40 up 0.9 percent.
Another big gainer was French car maker PSA Peugeot Citroen
, up 5.3 percent to near a three-year high. Bullish
comments from the company's chief financial officer at an Exane
BNP Paribas conference fuelled the rally and sent hedge-fund
short sellers scrambling to close bets the shares would fall.
"Peugeot is a nice recovery play," Isabelle Enos, deputy
head of asset management at B*Capital, said. "The group's recent
capital increase went smoothly, there's now much more visibility
on governance and shareholding structure, and the icing on the
cake is the recent pick-up in car sales in Europe."
Earlier this year, Peugeot was among the most shorted stocks
across Europe, with nearly 20 percent of the company's shares
out on loan in February. But the level dropped to 4.3 percent
this week, according to data from Markit, while the stock price
surged 40 percent over the same period.
Short selling - a trading strategy popular with hedge funds
- involves borrowing a security and selling it, betting that the
price will fall. Short sellers then buy it back at a lower price
and return it to the lender, pocketing the difference.
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 Alexandre Boksenbaum-Granier in Paris
and Alistair Smout in Edinburgh. Editing by Jane Merriman)