European stocks climb on ECB stimulus hopes

Trader Ryan Falvey, left, works on the floor of the New York Stock Exchange. File photo / AP

Equities in Europe advanced after European Central Bank President Mario Draghi cemented expectations euro-zone policy makers will take action at their next meeting in June to help bolster the region's economy.

Speaking at an ECB Forum on Central Banking on Monday, Draghi said the central bank expects that "low inflation will be prolonged but gradually return to 2 per cent."

"Our responsibility is nonetheless to be alert to the risks to this scenario that might emerge and prepared for action if they do," Draghi said. "What we need to be particularly watchful for at the moment is the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries."

"And at this point, for monetary policy to produce its full effects, there must be no binding constraints on credit supply through the banking system," Draghi said. "If, in this context, availability of term funding is a limiting factor on loan origination, then monetary policy can play a bridging role. Term-funding of loans, be it on-balance sheet-that is, through refinancing operations-or off-balance sheet-that is, through purchases of asset-backed securities-could help reduce any drag on the recovery coming from temporary credit supply constraints."

Europe's Stoxx 600 Index finished the session with a 0.6 per cent increase from the previous close. France's CAC 40 rose 0.8 per cent, while Germany's DAX climbed 1.3 per cent to a fresh record high. London stock and commodities markets were closed for a bank holiday.

"European stocks are pushing higher on the back of investors' anticipation that the ECB will have to announce stimulus measures at their June 5 meeting," Benedict Goette, chief executive officer of Compass Capital in Zurich, told Bloomberg News. "We believe this market strength might well continue into early June."

Investors were also pleased with the outcome of European Parliament elections, held on Sunday, as anti-European Union parties garnered less support than some had feared particularly in key countries Germany and Italy.

Italy's FTSE MIB index jumped 3.6 per cent, while yields on the country's 10-year bond shed 17 basis points to 2.99 per cent

"We have not seen spectacular outcomes in terms of Eurosceptic parties in the weaker countries except for Greece ... and that seems enough to draw investors back," Christian Lenk, a fixed income strategist at DZ Bank, told Reuters.

US markets were closed on Monday for the Memorial Day holiday.

Pfizer said it gave up its effort to buy the UK's AstraZeneca, which had rejected its latest 69-billion-pound offer.

"We continue to believe that our final proposal was compelling and represented full value for AstraZeneca based on the information that was available to us," Ian Read, CEO of Pfizer, said in a statement. "As we said from the start, the pursuit of this transaction was a potential enhancement to our existing strategy. We will continue our focus on the execution of our plans, bringing forth new treatments to meet patients' needs and remaining responsible stewards of our shareholders' capital."