European stocks rally on stimulus hope, China rate cut

London (AFP) - European stock markets rallied Friday on expectations of further economic stimulus for the eurozone and China's decision to slash interest rates to counter the slowdown in the world's second-biggest economy.

The eurozone's main stock markets in Frankfurt and Paris rose briefly by as much as three percent following hints of new economic stimulus from the European Central Bank.

The DAX 30 index soared 2.88 percent to close at 10,794.54 points while the CAC 40 rose 2.53 percent to 4,923.64 points, also buoyed by a key business survey showing eurozone economic activity accelerated in October, in one of the best performances in four years.

London's benchmark FTSE 100 index meanwhile won 1.06 percent to end the day at 6,444.08 points.

Market sentiment was also boosted by news mid-afternoon that the People's Bank of China was trimming interest rates by 0.25 percentage points and its reserve requirement ratio by 0.50 percentage points.

The PBoC also abolished its official cap on interest rates for savers as Beijing seeks to address slowing growth.

FXTM Research Analyst Lukman Otunuga described the Chinese move as a shock that "not only further fuels the mounting concerns about the economic deceleration in the world’s second largest economy, but raises questions about its Q3 GDP of 6.9%, and shows how the PBoC is willing to do all it can to ensure that the 7% end of year growth target is reached."

On the European stimulus front, ECB chief Mario Draghi had Thursday hinted at further stimulus measures, saying the central bank would reassess its monetary policy at its next meeting in December.

"European shares got another healthy pump higher from investors on Friday, with major European averages all up... having already surged over two percent the previous day," said Jasper Lawler, analyst at trading group CMC Markets.

"The ECB money train is about to leave the station and the markets are jumping on board," said Lawler, commenting ahead of the news from China.

Asia stock markets and emerging currencies had already surged on ECB hopes ahead of Beijing's post-close announcement.

US stocks were solidly higher on Friday as Microsoft and other technology giants reported strong earnings.

Near mid-day in New York, the Dow Jones Industrial Average stood at 17,581.33, up 0.53 percent.

The broad-based S&P 500 rose 0.89 percent to 2,066.66 while the tech-rich Nasdaq Composite Index jumped 1.84 percent to 5,010.73.

Microsoft surged more than 10 percent after reporting earnings for the quarter ending September 30 of $4.6 billion, up two percent and above expectations.

- Euro weakens -

On the currency markets, the euro recovered to stand at $1.1013, after hitting a two-month low of $1.1072, with the prospect of more euros flooding the market weighing on the single currency.

"The euro has weakened sharply following yesterday's ECB monetary policy meeting," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.

The euro got some help from a key business survey showing that eurozone economic activity accelerated in October, in one of the best performances in four years which included a notable improvement in employment.

Data monitoring company Markit said its closely watched composite Purchasing Managers Index rose to 54 points compared with 53.6 points in September, well above the 50-point boom-or-bust line.

The recent gains for equities meanwhile come after global markets suffered their worst quarter in four years during the July-September period owing to worries about the slowing Chinese economy.

In share price movements Friday, Sweden's Volvo closed up 2.75 percent after the world's second-biggest truckmaker unveiled a doubling of third quarter net profits.

On the downside, TalkTalk Group shares in London plunged 4.22 percent to 257.18 pence after the telephone and broadband provider said it was hit by a "significant and sustained" cyber-attack.

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