By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets climbed to an
almost five-year high on Wednesday, after U.S. Federal Reserve
Chairman Ben Bernanke calmed fears that the central bank will soon
fade out its easing program.
The Stoxx Europe 600 index inched 0.2% higher to 310.59, closing
at the highest level since June 2008.
The index traded in negative territory for most of the day, but
was sent higher in late trade, after Bernanke warned that premature
monetary tightening could strangle the economic recovery, easing
worries that the central bank was close to ending its
$85-billion-a-month bond-buying program. Cheap liquidity from
central banks have recently sent global stock markets to multiyear
highs and any changes to such easing policies could create
nervousness in financial markets.
In testimony to the Joint Economic Committee of Congress
Bernanke said that "a premature tightening of monetary policy could
lead interest rates to rise temporarily, but would also carry a
substantial risk of slowing or ending the economic recovery and
causing inflation to fall further."
When asked about when the Fed will slow down asset purchases,
Bernanke says it could come in the "next few meetings," taking
stocks off their intraday high.
"It seems like Bernanke has confused the markets. The initial
take on the actual speech was that he was more dovish, saying it
would be premature to have the discussion [about ending QE], but
then in the Q&A session he said they could do it within the
next months. That created a sense of confusion, which I'm sure he
wasn't shooting for," said Tom Porcelli, chief U.S. economist at
RBC Capital.
"I think that the market got the Q&A wrong. The caveat was
that if data start to improve the Fed could end QE, but it they
don't improve it will continue with asset purchases. There is
nothing new in this. He has been talking about this for quiet a
while. Markets just wanted to focus on that bit from the Q&A
session," he added. RBC Capital expects the Fed to taper off the
asset purchases in fourth quarter of the year.
The comments from the chairman came a day after two other voting
members of the Federal Open Market Committee spoke, with St. Louis
Fed President James Bullard saying there isn't a case for scaling
down the pace of asset purchases as long as inflation is so
low.
Separately, New York Fed President William Dudley said the
uncertain economic outlook makes it difficult to tell if the next
adjustment to the Fed's QE program will be up or down.
After the European market close on Wednesday, the central bank
will release minutes from its April 30-May 1 meeting, which may
provide more insight into the Fed's stance on quantitative
easing.
U.K. 13-year high
Back in Europe, the U.K.'s FTSE 100 index closed at the highest
level since December 1999, after the International Monetary Fund
called for new growth measures and less austerity to help the
country's economy.
Also in the U.K., minutes from the Bank of England's latest
policy meeting showed the Monetary Policy Committee voted
unanimously to keep interest rates unchanged at a record low 0.5%.
Additionally, three out of the nine members voted in favor of
increasing the bank's asset purchases by 25 billion pounds ($38
billion) to a total of GBP400 billion.
The index rose 0.5% to close at 6,840.27. Shares of Lloyds
Banking Group PLC (LYG) added 2.3%, after the bank said it expects
to meet its additional capital requirements without having to issue
further equity or use contingent capital securities.
Outside the main index in London, shares of Britvic PLC surged
11%, after the beverage firm said adjusted earnings per share rose
48% for the 28 weeks to April 14, while increasing dividends 1.9%
to 5.4 pence (82 cents).
Shares of Kazakhmys PLC dropped 6%, after UBS cut the miner to
neutral from buy.
Germany's DAX 30 index gained 0.7% to close at an all-time high
of 8,530.89, extending gains into a 12-day straight day.
Banks posted some of the biggest gains, with Commerzbank AG up
2.3% and Deutsche Bank AG 1.4% higher.
Shares of Metro AG jumped 10%, after Morgan Stanley turned
buyers of the shares for the first time in nearly a decade, saying
risks are solidly skewed to the upside. The Morgan Stanley analysts
lifted Metro to overweight from equal weight.
France's CAC 40 index put on 0.4% to 4,051.11.
Shares of Lagardere SCA added 3.4%, after J.P. Morgan Cazenove
lifted the stock to neutral from underweight.
Outside the major indexes, shares of Roche Holding AG gained 3%,
after Citigroup lifted the drug maker to buy from neutral.
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