MILAN: A rally in auto stocks lifted German shares to 10-day highs on Wednesday as upbeat broker notes reawakened investor interest into a cheaply valued sector that could benefit from plans to cut emissions.
The German blue chip index, where big carmakers such as Volkswagen and Daimler are listed, rose 0.8 percent, while the pan-European STOXX 600 index rose 0.1 percent after a choppy session where caution prevailed ahead of a European Central Bank meeting on Thursday.
Europe's auto index rose 1.7 percent, the best sectoral performer in the region by far.
Shares in Italian-American car maker Fiat Chrysler , recently supported by expectations of possible tie-ups, rose 4.3 percent to a record high, followed by Daimler, which gained 3.2 percent.
Both stocks were boosted by upgrades, from Barclays and Goldman Sachs respectively.
A trader at a European bank said while the positive notes helped, some big fund managers were reducing their underweight positions on the sector lured by attractive valuations.
He said efforts by German Chancellor Angela Merkel to avert bans of diesel vehicles in some cities also buoyed interest, as well as expectations that sales could be driven up by people replacing cars damaged during hurricanes in the United States.
The surge came as investors awaited the start of the auto show in Frankfurt which kicks off next week.
Financials were the biggest weight, with Europe's banking index, down 0.3 percent, extending its slide from the previous session as the sector came under renewed pressure ahead of the ECB's policy meeting on Thursday, which will be watched for possible signals of monetary tightening.
Among the top fallers Jyske Bank fell 5 percent after BRFholding reduced its stake in the lender.
Elsewhere results spurred some sizeable individual stock moves, with shares in Micro Focus soaring 6.2 percent after a well-received third quarter update.
British housebuilder Barratt Developments declined more than 4 percent however after it issued a cautious outlook.
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