Dovish ECB sets European shares up for best week since early March

European shares were set for their best week in more than three months on Friday, after Thursday's European Central Bank meeting led investors to push back expectations for an interest rate increase, weakening the euro and helping shares of exporters. The pan-European STOXX 600 index was little changed by 0750 GMT but was up 1.9 percent on the week as the euro zone index rose 0.1 percent to a three-week high.
"The euro is getting crushed after Draghi's performance yesterday and the ECB's dovish wind-down of QE," said Neil Wilson, chief market analyst at Markets.com in London. ECB President Mario Draghi said on Thursday the central bank would end its bond-buying scheme by the close of the year, but signalled that any rate increase is still distant. In the previous three weeks, the STOXX posted losses as investors were put off by worries over an anti-establishment government in Italy, the euro zone's third-largest economy, and concern over slowing growth in the region.
On Thursday the ECB cut its growth forecasts and on Friday Germany's central bank cut its growth forecast for this year, saying trade and political concerns made the outlook for the country's economy less clear. On Friday, the export-oriented auto sector, which tends to benefit from a lower euro, rose 0.8 percent, among the leading gainers in Europe. Banks, whose margins have been squeezed by record-low interest rates, led declines, down 1.1 percent.
Among single stocks, Rolls Royce rocketed 11 percent higher after saying it would exceed its 2020 guidance as it announced new ambitious mid-term goals.
The maker of engines for aircraft and ships has been in turnaround mode since 2015, and following a cost-saving plan announced on Thursday, said the foundation was in place for higher returns in future.
Its gains helped Europe's aerospace and defence index, which also benefits from strength in the dollar,
rise 1.6 percent to a record high. Plane maker Airbus also reached a record high, up 0.5 percent.
Elsewhere, Tesco rose 1.9 percent after Britain's largest retailer said a drive to lower prices had boosted its quarterly sales, in a warning for rivals three years after the firm embarked on a turnaround programme.
Speciality pharmaceuticals company Indivior sank 15 percent, leading losers on the STOXX, after rival Dr Reddy's Laboratories received US approval to launch a generic version of its key opioid-addiction treatment.