European stocks hit over four-month highs after EU recovery fund sealed

(Reuters) - European shares closed above four-month highs on Tuesday, with Germany’s blue-chip DAX erasing almost all its losses for the year, after EU leaders agreed on a landmark stimulus package to revive the bloc’s economies from a coronavirus-induced slump.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, July 20, 2020. REUTERS/Staff

The pan-European STOXX 600 .STOXX jumped as much as 1.3% before ending 0.3% higher at its highest since early March, as did an index of euro zone blue-chip stocks .STOXX50E which rose 0.5%.

Oil stocks .SXEP were the biggest boost, also marking their best session since early March, as crude prices surged. [O/R]

The global mood also brightened on growing optimism about a COVID-19 treatment after promising early data from trials of three potential vaccines. [MKTS/GLOB]

European Union leaders clinched a “historic” deal in the early hours of Tuesday on a 750-billion-euro ($856 billion)recovery fund and its related 1.1-trillion-euro budget for 2017-2021 that they hope will help repair the continent’s deepest recession since World War Two.

“It will add to the foundation of the current bull market,” said Teeuwe Mevissen, senior macro strategist at Rabobank.

“It will have a long-term impact in the sense that if the European Union finds itself in a similar situation in the future, then markets will expect that governments will come to the rescue.”

Germany's DAX .GDAXI gained 1% finishing at five-month highs, boosted by tech major SAP SE SAPG.DE.

Graphic: Germany's DAX: social distancing with record highs? -

A gauge of European stock market volatility .V2TX sank to its lowest since Feb. 25.

Spain and Italy, among the south European countries set to benefit from the EU deal, saw their main indexes .IBEX.FTMIB gain 0.2% and 0.5% respectively.

Eyes are now on likely U.S. aid legislation aimed at supporting its economy.

Topping the STOXX 600 index was Adevinta ADEV.OL which soared 26% after U.S. firm Ebay Inc EBAY.O agreed to sell its classified ads business to the Norwegian group in a deal worth $9.2 billion.

In earnings-driven moves, Randstad Holding RAND.AS jumped almost 9% after the staffing company reported a smaller-than-expected drop in quarterly core earnings.

The biggest drag on the STOXX 600 was Novartis NOVN.S, down 1.9% after the drugmaker trimmed its 2020 sales forecast as coronavirus related disruptions hit its quarterly revenue.

Europe's healthcare index .SXDP was the worst sectoral performer, down 1% with AstraZeneca AZN.L also declining after a University of Oxford researcher flagged uncertainty about rolling out its possible COVID-19 vaccine - licensed to AstraZeneca, by the end of the year.

London's FTSE 100 .FTSE ended flat with shares of mining giant BHP BHPB.L also sliding 2.6% after it warned of risk to demand.

Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta and Susan Fenton