EUROPEAN shares climbed to their highest in nearly 14 months on Wednesday after Germany's Constitutional Court rejected complaints against the euro zone's new bailout fund and allowed its ratification under certain conditions.
The court said Germany could ratify the European Stability Mechanism and budget pact as long as it could guarantee there would be no increase in German financial exposure to the bailout fund without parliament's approval.
"The market was expecting it to be ratified but with some conditionality, which seems to be the case. The conditionally that I've seen so far doesn't come as a great surprise ... It hasn't shocked the market in a negative sense and therefore it allows the market to move forward," Kevin Lilley, European equities fund manager at Old Mutual Asset Management, said.
Approval of the ESM is a vital part of a European Central Bank plan to defuse the euro zone debt crisis by buying struggling peripheral countries' bonds in the secondary market.
The FTSEurofirst 300 index of top European shares was up 0.5pc at 1,112.93 points after rising as far as 1,114.33, its highest since July 2011.
Cyclical sectors gained, with banks advancing 1.6pc, insurers gaining 1.5pc and autos rising 1.1pc.
Germany's DAX was up 0.9 percent, Spain's IBEX rose 1.3 percent and Italy's FTSE MIB gained 0.9pc.
Investors also focused on a two-day U.S. Federal Reserve, policy meeting starting on Wednesday. Markets widely expect some type of new monetary stimulus to boost the U.S. economy.
Equities have rallied strongly since early June, with the euro zone's blue chip Euro STOXX 50 index surging about 25pc, lifted by expectations of central bank action to revive economic growth and tackle the euro zone debt crisis.