European shares ended higher Thursday, lifted by expectations for economic stimulus in China, and as the Spanish government held an eagerly-awaited news conference on the 2013 budget and on economic reforms.
The FTSEurofirst 300 Index closed higher.
Spain announced that the budget for 2013 would focus on cutting spendingrather than raising taxes, and the government would pass 43 new laws to reform the economy over the next six months.
Meanwhile, the Spanish budget minister warned that the nation could see a soft recession in 2013 and said GDP will be down 0.5 percent.
And shortly after the European markets closed, Spain announced it will tap 3 billion euros from the social security reserve to cover liquidity needs. The euro tumbled to a session low against the U.S. dollar, hitting the lowest level since September 12.
Investors are also looking ahead to the results of an audit of Spanish banks on Friday. That will reveal the banks' recapitalization needs. Ratings agency Moody’s is expected to conclude a review of Spain’s credit rating soon, adding to investors' nerves.
On Wednesday demonstrators gathered in front of government buildings in Madrid for a second day of protests, calling for the government to resign. Prime Minister Mariano Rajoy signaled that if bond yields stayed too high for too long, he would ask for a bailout. On Thursday, yields on the country's 10-year bonds were still above the 6 percent mark.
At a successful auction on Thursday, Italy's 5-year borrowing costs fell to their lowest since May 2011 with bond yields dropping to 4.09 percent compared with 4.73 percent in an August sale. 10-year bond yields fell to 5.24 percent from 5.82 percent one month ago. The FTSE MIB Index was up 0.56 percent with the auction after initially falling in morning trading.
In stocks news, construction companies , basic resources and banks were the biggest gainers. Mining giants Glencore and Kazakhmys were both higher.
The U.K.'s RBS saw its shares move up 0.78 percent. Reports on Thursday said the bank is on the verge of selling off its insurance company Direct Line.
In earnings news, Sweden-based clothing retailer H & M (Hennes and Mauritz) released third quarter earnings that missed forecasts and shares were 1.06 percent down.
British-based agribusiness Tate and Lyle released a trading update on Thursday showing flat profits for the first half of the year with improvements in the second half. Shares traded 2.6 percent higher.