Euro shares up overnight on growth signs

There are new signs of economic growth in Europe, pushing shares up overnight. Photo / Thinkstock

Unexpected signs of accelerating inflation in Germany bolstered both European stocks and the currency as it underpinned optimism that the recovery in the region's largest economy might be gaining traction.

Germany's annual inflation rate picked up to 1.6 per cent this month, from 1.2 per cent in October. Economists had called for a steady rate at 1.2 per cent in November.

Earlier this month the European Central Bank surprisingly cut its key benchmark rate to a record-low 0.25 per cent because it was concerned about the slow pace of price increases.

"The higher-than-expected inflation numbers in Spain and Germany may dent expectations for further stimulus from the ECB in the short term," Allan von Mehren, chief analyst at Danske Bank in Copenhagen, told Bloomberg News. "Our view is inflation will fall back again in December and the new year."

Earlier this week, a report showed better-than-expected consumer confidence in Germany and a report on Thursday showed the rest of the euro zone feels more optimistic as well.

Economic confidence in the euro zone increased to a higher-than-expected 98.5 in November, up from 97.7 in October, and the highest level in more than two years.

Europe's Stoxx 600 Index finished the session with a 0.4 per cent increase from the previous close, ending at the highest level in more than five years. Germany's DAX rose 0.4 per cent, while France's CAC 40 added 0.2 per cent. The UK's FTSE 100 Index eked out a gain of just under 0.1 per cent.

Germany's DAX has gained 23 per cent in 2013, not far off the 26 per cent increase in the Dow Jones Industrial Average over the same period, while the Standard & Poor's 500 Index has risen 29 per cent. The FTSE 100 has advanced 17 per cent so far this year.

Another strong performer is Japan's Nikkei 225, which has climbed 54 per cent in 2013.

Analysts are optimistic there are further gains ahead.

"Our stance for quite a while has been pretty optimistic on equities and that is where we continue to stay," Sybren Brouwer, head of equity strategy at ABN Amro, told Reuters. "There could be some risk of losing momentum or even a small correction, but over the longer term the outlook remains strong."

And even former Federal Reserve Chairman Alan Greenspan said he saw no signs of a bubble in the American stock market at record highs.

"This does not have the characteristics, as far as I'm concerned, of a stock market bubble," Greenspan told Bloomberg Television's "Political Capital with Al Hunt," airing this weekend. "It could come out that way but I don't see it at this stage."

Still, Greenspan said economists who forecast 2.5 per cent to 3 per cent expansion for the world's largest economy next year may be too optimistic, adding his 2014 growth forecast is "closer to 2 per cent."

On Thursday Wall Street was closed because of the Thanksgiving holiday. It will be open only a half day on Friday.

On Wednesday in New York, the Dow Jones Industrial Average closed 0.15 per cent higher at 16,097.33, while the Standard & Poor's 500 Index finished 0.25 per cent stronger at 1,807.23.