European shares edged higher on Monday, buoyed by improved German business sentiment and investor belief the uptrend in stock markets would be underpinned by an extension of easy US monetary policy. Remarks by Federal Reserve Chairman Ben Bernanke tamped down expectations of a quick reversal in monetary policy, fanning hopes that the markets could see another round of quantitative easing.
"Bernanke's warning that the cyclical labour market problem may convert into a structural one, might be a call for even more easing," Harm Bandholz, chief US economist at UniCredit Research, said. Bernanke's remarks to the National Association for Business Economics gave markets an extra push, extending a modest rise after German business sentiment rose unexpectedly for the fifth month in a row in March.
The pan-European FTSEurofirst 300 index of top shares closed up 0.9 percent at 1,089.00. The Euro STOXX 50, meanwhile, rose 0.6 percent. The Spanish market bucked the trend after the governing People's Party missed out on an outright majority in regional elections. The IBEX fell 0.7 percent after earlier hitting a two and a half week low. Spanish banks were among the biggest decliners on worries Prime Minister Mariano Rajoy may find it difficult to deepen cutbacks in public spending needed to help Spain out of the euro zone debt crisis.
BBVA closed 1.4 percent lower while Banco Santander lost 1 percent. Lundin Petroleum was a standout gainer, up 7.1 percent, after its latest test well in the giant North Sea Johan Sverdrup discovery showed strong results. Around Europe, UK's FTSE 100 index was up 0.8 percent, France's CAC 40 rose 0.7 percent and Germany's DAX index was up 1.2 percent.
The DAX is a clear outperformer so far this year. The German blue chip index has climbed 20 percent, about twice as much as the CAC 40 and more than triple the gain in the FTSE 100 index. Analysts believe the DAX is set for a further rise. "As long as the DAX maintains above the 6,850 points mark, chartists expect a further increase," said Sung Woo Kim, analyst at IG Markets. London Capital Group's Angus Campbell also said the market was still in an uptrend and that he expected it to rally into the next quarter if the corporate season was good.
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