Banks lift shares to 11-month high
European shares rose on Thursday, helped by gains in global banks after the Federal Reserve raised US interest rates, while growing corporate deal activity underpinned year-end optimism.
The pan-European STOXX 600 index rose 0.9pc, ending at its highest level since January 5. It is still down nearly 2pc so far in 2016 but could close the year in positive territory if it sees an end-of-year rally. The Iseq index closed up 1.73pc.
The European banking index surged 2.5pc, also ending at an 11-month high. Deutsche Bank, BNP Paribas, HSBC, Santander and Credit Suisse rose 1.5 to 5.3pc after the Fed's move.
Banks benefited from gains by short-dated US treasury yields, which touched their highest in more than seven years, after the Fed raised interest rates for the first time in a year and hinted at more in 2017.
Higher yields are a boon to banks' profitability. "We think that the Fed will continue to be very gradual in its rate hikes and we look for maybe two to three rate hikes in 2017, depending on how growth comes out next year," said Bob Baur, chief global economist at Principal Global Investors.
"We expect to see higher stock prices, faster nominal growth, mildly higher interest rates and just a bit more inflation."
Also helping financials, Italian banks rose 4.4pc and were on course for a third straight week of gains.
Italian banks have staged a rebound since Paolo Gentiloni was appointed prime minister, on expectations that a stable political environment will help ailing banks to recapitalize. Sources said the Italian government was ready to pump €15bn in to Monte dei Paschi di Siena and other ailing banks.