European shares hit six-year high as ECB ramps up stimulus

European shares rose today, with a key benchmark briefly hitting a six-year high, as the European Central Bank further cut interest rates and unveiled plans to buy assets in a bid to shore up inflation in the euro zone.

The ECB unexpectedly cut interest rates to new record lows and the bank’s president Mario Draghi said it would start buying securitised loans and covered bonds next month to help unblock lending in the euro zone. Yields on euro zone sovereign bonds fell, further boosting the attractiveness of stocks in a low-return environment.

The FTSEurofirst offers a 3.3 per cent yield, compared to 2.4 per cent on Italy’s 10-year bond. Earlier, the FTSEurofirst 300 index of top European shares was up 1 per cent at 1,399.43 points, having hit its highest level since early 2008 at 1,402.79 points.

The index has risen nearly 8 per cent since mid-August as investors anticipated the ECB’s move, leading some traders to cash in on their bullish stock bets after the announcement. “Even if Draghi delivered and certainly didn’t disappoint, quite a bit of the news had already been priced in,” said Markus Huber, a senior trader at Peregrine & Black.

“Even if these measures would turn out not to be as effective as the ECB is hoping that doesn’t mean that stocks in the mid-to long-term won’t go up as once again the market is flooded with liquidity and there are very few alternatives to stocks.”

Trading volume was high at nearly 80 per cent of the FTSEurofirst full-day average for the past three months. The broad-based rally saw all sectoral indexes in the STOXX Europe 600 trade in positive territory, led by euro zone banks, which are set to benefit from selling asset-backed securities to the ECB. “This will be quite positive for European banks as a whole, allowing them to free up capital from loans and to lend to the real economy,” Carlos Peixoto, an analyst at BPI in Porto, said.

Elsewhere, Standard Life surged 6.1 per cent after the financial services group agreed to sell its Canadian operations for about $3.7 billion to Manulife Financial. German industrial services and construction group Bilfinger tumbled 9.8 per cent after it slashed its 2014 profit forecasts late yesterday.

Reuters