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[Enterprising Investor]

EUROPE MARKETS: Banks, Data Drive European Stocks Higher

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) -- European stocks rose on Tuesday, with banks driving the gains after German jobless figures came in better than expected and Ireland marked a successful return to the international bond market. Broker moves across the board left BASF SE higher and Swedish Match AB lower.

The Stoxx Europe 600 index rose 0.7% to 329.32, with the oil sector helping pad out those gains. The index eased 0.2% on Monday.

Vestas Wind Systems AS was among the biggest movers on the Stoxx 600, up more than 6%. The wind-turbine maker upgraded its free cashflow expectations for 2013 to around 1 billion euros ($1.36 billion).

On the downside, shares of Swedish Match AB were a top decliner, off 5.4% after Citi cut it to sell from neutral, saying competition pressures in Sweden were likely to continue in 2014. It cited specific worries about the cigar sector.

Broker moves triggered action for several companies. Shares of BASF SE added nearly 3% after UBS lifted shares to buy from neutral, saying the company should resume a re-rating trend relative to other big-cap-chemical household names. UBS also cut Air Liquide SA to sell from neutral, triggering a drop of 1.4%, saying shares in the industrial-gas producer should resume underperformance versus BASF.

The German DAX 30 index rose 0.7% to 9,497.03 after data showed seasonally adjusted jobless claims in the country falling 15,000 to 2.97 million in December, which was better than expected. German retail sales data also came in better than expected, with a November preliminary rise of 1.5%.

"If Germany can show an improving labor market, it gives hope to the region overall, although all bar Germany have substantial reform to undertake if they are to match German efficiency," said Stephen Pope, managing partner at Spotlight Ideas, in emailed comments.

European stocks also rose after data showed euro-zone inflation falling back in December, further below the European Central Bank's target.

Tom Rogers, senior economic advisor to the EY Eurozone Forecast, said the central bank will "need to remain alert to the risk of deflation, and following Thursday's Governing Council meeting, be prepared to respond to increased speculation over which policy tools it might use to try and address falling prices."

Banking stocks were the day's best performers, and investors also got encouraged as Ireland successfully sold 3.75 billion euros' ($5.1 billion) worth of 10-year bonds on Tuesday to strong demand, according to news reports. The return to the bond market follows the country's exit from its international bailout program.

The French CAC 40 index rose 0.7% to 4,258.29, with banks such as Credit Agricole SA soaring 7%, BNP Paribas SA up 3% and Societe Generale SA gaining over 4%. Shares of Total SA (TOT) rose 0.8% as the oil sector gained amid strong energy prices.

In Frankfurt, shares of Commerzbank AG jumped 6%, while in London, HSBC Holdings PLC (HSBC) rose 3.4%. BP PLC (BP) gained close to 1%, helping drive the FTSE 100 index up 0.5% to 6,763.16.

Also in London, shares of Severn Trent PLC fell 2% after J.P. Morgan Cazenove cut shares in the water company to underweight from neutral. It cited concerns about rising regulatory risks, and a decreasing likelihood of mergers and acquisitions activity.

A number of technology companies were affected by a note from Barclays analysts on the sector. They said they see a gradual improvement for the European tech sector, but shares of ST Microelectronics NV slid 2% after a cut to underweight from equalweight.

The best performer for Tuesday so far was the Spanish IBEX 35 index , rallying 2.8% to 10,176.40, with Banco Santander SA (SAN) up nearly 4% and BBVA SA (BBVA) up more than 5%%.

Data released Monday from Markit indicated strengthening in Spain helped raise a gauge of the euro zone's services sector and the broader private sector in December.