By Carla Mozee, MarketWatch

Banks advance, yields rise

European stocks on Thursday leapt to an 11-month high, with German stocks soaring as the euro was yanked down, after the European Central Bank said it would continue to buy government bonds through next year, but at a lower amount each month beginning in April.

The Stoxx Europe 600 index scaled up by 1% to 351.06, leaving only the health-care and utilities sectors in the red. The index was on track for its highest close since Jan.6, according to FactSet data. A win on Thursday would be the pan-European's fourth, after rising on Wednesday by 0.9% (http://www.marketwatch.com/story/credit-suisse-miners-push-stoxx-europe-600-toward-highest-close-since-september-2016-12-07).

The moves were made after the ECB said, among other things, it will buy EUR60 billion a month in government bonds, starting in April 2017 through December 2017. That compares with the EUR80 billion in bonds it buys a month now, with that amount to run through March 2017.

"European markets initially couldn't make up their minds about today's ECB rate decision, and while the banks liked the fact that the pace of asset purchases was slowed, and the pool of assets extended, sending yields higher, the euro didn't like it so much," and eventually swung sharply lower, said Michael Hewson, chief market analyst at CMC Markets UK, in a note.

The euro (http://www.marketwatch.com/story/dollar-buying-takes-a-breather-as-investors-look-ahead-to-central-bank-meetings-2016-12-08) initially hit an intraday high of $1.0874 before being dragged to as low as $1.0613. The shared currency later fetched $1.0617.

"In the end equity markets liked what they heard and moved higher accordingly, extending this week's gains and making new multi month highs in the process," including sending the German DAX 30 above 11,000 for the first time this year.

The DAX 30 carries shares of numerous exporters, and a weaker value of the euro can bolster demand for German-made products by clients overseas. On the index, auto maker BMW AG (BMW.XE) rose 2.9%, Daimler AG (DAI.XE) tacked on 2.4% and steelmaker ThyssenKrupp AG (TKA.XE) climbed 2.8%. Meanwhile, Commerzbank AG (CBK.XE) climbed 4%.

The Stoxx Europe 600 Bank Index popped up 1.9% and shares of Italian banks, many of which have been grappling with hefty debt piles, were moving up. The FTSE Italia All-Share Banks Sector Index rose 1.7%. That index has jumped nearly 14% over the past two sessions.

In the fixed-income markets, the yield on Germany's 10-year bund briefly drove up to an 11-month high to 0.433%, according to Tradeweb, after the ECB's policy announcement. Italy's 10-year bond yield also jumped, to 2.049%, but has since pulled back a bit to 2.033%. Yields rise as prices fall.

The ECB is widening the pool of available bonds to purchase by saying it will now be able to buy debt yielding less than its deposit rate of minus 0.4%. Such purchases are an option, not a necessity, Draghi said at a press conference.

But the higher bond yields may emerge as a sore spot for Italy, in particular, which has a large stock of government debt to be rolled over into 2017 and the country could face much higher rates if yields levels remained elevated, said Hewson.

Indexes: France's CAC 40 index picked up 0.8% at 4,730.06. Spain's IBEX 35 surged 1.8% to 9,123.90 and Italy's FTSE MIB bulked up 0.9% at 18,294.10.

The U.K.'s FTSE 100 was up 0.3% at 6,925.36.

Stocks on the move: William Hill PLC (WMH.LN) shares dropped 6%. The Times newspaper reported (http://www.thetimes.co.uk/article/cut-betting-terminal-stake-to-2-mps-demand-kl6lkqjvj) that a cross-party group of U.K. lawmakers will demand stricter controls on betting machines.

Capita PLC shares (CPI.LN) fell 14% after the support services firm cut its 2016 profit forecast (http://www.marketwatch.com/story/capita-lowers-profit-guidance-starts-cost-cutting-2016-12-08), and said it is selling some of its businesses that no longer fit its core business strategy.

DS Smith PLC shares (SMDS.LN) rose 6.2% as the recycled packaging producer raised its interim dividend (http://www.marketwatch.com/story/ds-smith-profit-up-60-lifts-dividend-by-15-2016-12-08) by 15% and said pretax profit increased 60% during the six months to Oct. 31.

Ericsson AB (ERIC) shares were off 0.2% as the Swedish telecom-network equipment maker said restructuring costs will be higher than previously expected (http://www.marketwatch.com/story/ericsson-warns-on-revamp-costs-no-new-job-cuts-2016-12-08) this year, but no further job cuts are planned beyond those already announced.

 

(END) Dow Jones Newswires

December 08, 2016 11:12 ET (16:12 GMT)

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