UKX FTSE 100 Index

By Carla Mozee, MarketWatch

Bank shares advance, bond yields rise

European stocks on Thursday closed at an 11-month high, with German stocks hitting a 2016 peak as the euro was yanked down, after the European Central Bank said it would continue buying government bonds through next year, but at a lower amount each month beginning in April.

The Stoxx Europe 600 index scaled up by 1.2% to close at 351.96, the best close since Jan. 6, according to FactSet data. Thursday's win is the pan-European index's fourth in a row, 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). All sectors finished higher.

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 $1.0602. The shared currency later fetched $1.0627.

"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 Germany's DAX 30 to its highest settlement since Dec. 2, 2015. It jumped 1.7% to 11,179.42.

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 3.1%, Daimler AG (DAI.XE) tacked on 2.5% and steelmaker ThyssenKrupp AG (TKA.XE) climbed 3%. Meanwhile, Commerzbank AG (CBK.XE) climbed 5.2%.

The Stoxx Europe 600 Bank Index popped up 2.3% and shares of Italian banks, many of which have been grappling with hefty debt piles, closed higher. The FTSE Italia All-Share Banks Sector Index rose 1.7%, bringing its gain to 15% so far this week.

In the fixed-income markets (http://www.marketwatch.com/story/treasury-yields-rise-ahead-of-ecb-announcement-2016-12-08), the yield on Germany's 10-year bund briefly drove up to an 11-month high at 0.433%, according to Tradeweb, after the ECB's policy announcement. Italy's 10-year bond yield also jumped, to 2.049%, but pulled back a bit to 2%. Yields rise as prices fall.

The ECB said 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 0.9% end at 4,735.48. Spain's IBEX 35 surged 2.1% to 9,145.40 and Italy's FTSE MIB bulked up 1.6% and closed at 18,427.86.

The U.K.'s FTSE 100 rose 0.4% to 6,931.55.

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 5.8% 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 shed 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 12:26 ET (17:26 GMT)

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