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Shares Close at 14-Month High on Fed Stimulus Move

CNBC.com with Reuters
Friday, 14 Sep 2012 | 12:24 PM ET

European shares closed higher on Friday setting a new 14-month high, as growth-linked stocks were boosted by the U.S. Federal Reserve’s decision to roll out a third round of quantitative easing (QE3).

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DAX
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The FTSEurofirst 300 index provisionally closed 1.1 percent higher at 1,118.17 points, a level not seen since July 2011, in volume 135 percent of the 90-day average.

Spain's IBEX 35 index was the biggest gainer out of the major European stock indexes, provisionally closing 2.5 percent higher, down from a session high of 3.6 percent.

The announcement of QE3 had been anticipated by markets but is being seen as particularly aggressive because the Fed suggests that it will continue to purchase mortgage-backed assets, as well as long-term Treasurys, until economic conditions improve.

Despite the rally, investors will keep one eye out on the problems in Greece and Spain on Friday, as their financial problems are set to top the agenda at a meeting of euro zone finance ministers in Cyprus.

The ECB and the IMFdenied on Fridaythat they were in negotiations with Spain for a 300 billion euro ($386 billion) rescue bailout. The report first appeared in a Dutch newspaper but the European markets were unmoved by it, as well as the denial that followed.

In stocks news, basic resources, construction materials, banks and the auto industry led the rally on Friday.

"We are accumulating good conditions for a recovery in equity prices and things are moving in the right direction," Dan Morris, global market strategist at JPMorgan Asset Management, which manages $1.3 trillion, said.

"Cyclical sectors, in general, should do well because they are going to both benefit from the liquidity into the system and their inflation hedge qualities. You may well see a bounce in sectors such as materials and energy," he said.

The STOXX Europe 600 Basic Resources index surging 5.9 percent, the biggest one-day gain in more than 9 months.

Kazakhmys jumped 13.3 percent and Eurasian Natural Resources Corporation (ENRC) rose 10.6 percent.

Another big gainer on Friday was mining firm Lonmin. The company offered striking workers an increased pay offer, and talks between the two sides were said to be continuing.

Commerzbank and Deutsche Bank also closed sharply higher on Germany's DAX index .

The merger between EADS and BAE was still affecting their share prices on Friday. BAE announced that it wants the deal to go ahead without any political interference.