Investing.com - European stock markets closed sharply higher Wednesday, as ECB president Mario Draghi promised to lend support should the economy slip lower lifting hopes of stimulus supporting equities.
At the close of European trade, the EURO STOXX 50 surged 2.42%, France’s CAC 40 jumped 2.42%, while Germany’s DAX 30 rallied 2.09%.
Market sentiment was lowered as Draghi stated that there were downside risks to the European economy, stemming from the debt crisis in the region and its growing potential to spill over to the wider economy.
However, Draghi promised the ECB stands ready to help support the economy should things deteriorate in the euro zone fuelling the equity rally.
The ECB president went on to say the central bank would extend its policy of lending to banks until mid-January 2013 but didn't announce any new three-year lending operations, disappointing expectations for fresh easing measures to stabilize markets.
Earlier Wednesday, the ECB left euro zone interest rates unchanged at 1%, in a widely expected decision.
In addition, Federal Reserve Chairman Ben Bernanke was due to testify on Thursday before a congressional committee about the strength of the U.S. economy. The Wall Street Journal, citing interviews and Fed speeches, reported late Tuesday that the U.S. central bank is mulling new measures to stimulate growth in the world’s largest economy.
Financial stocks extended earlier gains, as shares in French lenders Societe Generale and BNP Paribas surged 2.97% and 3.36% respectively, while Germany’s Deutsche Bank and Commerzbank climbed 2.12% and 1.52%.
Commerzbank was one of the six German lenders downgraded on Tuesday evening by Moody’s ratings agency, which also cut the ratings of Austria’s three largest banks, saying they face risks if the euro zone crisis deepens.
Meanwhile, telecom giant Nokia Finland saw shares surge 6.54%, after U.S. Internet company Google lodged a complaint with European Union competition authorities against Nokia and its U.S. software peer Microsoft. The complaint alleges collusion between Nokia and Microsoft in order to increase prices for smartphones and tablets.
In London, FTSE 100 gained 1.40%, boosted by strong gains in financial stocks while data showed that construction activity in the U.K. fell more-than-expected in May.
Shares in the Royal Bank of Scotland were up 7.88% after skyrocketing 932.52% when markets opened, as a result of a share consolidation authorized at the bank's annual meeting last week. According to Sir Philip Hampton, chairman of the bank, the consolidation will reduce the "volatility" of the bank's share price and help improve investor confidence.
Lloyds Banking saw shares climb 5.33% after agreeing to sell GBP809 million of Australian corporate real estate loans to a Morgan Stanley and Blackstone Group LP joint venture for about GBP388 million pounds in cash. Meanwhile, Barclays and HSBC Holdings rose 5.94% and 3.27% respectively.
Energy stocks also contributed to gains, as Premier Oil Plc jumped 6.84% after the British explorer said it encountered oil in its 50% owned Carnaby 28/09-5A well in the North Sea. Cairn Energy, which owns 15% of the Carnaby well, rose 4.78%.
Mining stocks extended earlier gains, as Rio Tinto and Bhp Billiton added 3.57% and 3.44% respectively, while copper producers Xstrata and Kazakhmys jumped 3.06% and 6.24%.
Elsewhere, Diageo Plc, the maker of Johnnie Walker, J&B and Buchanan’s scotch whiskeys, advanced 2.31% after saying it will invest in scotch whiskey production.
In the U.S., equity markets followed sharply higher with the Dow Jones Industrial Average up 1.90%, S&P 500 futures trading higher by 1.83%, while the Nasdaq 100 soared 2.10%
In addition Wednesday, official data showed that German industrial production dropped 2.2% in April, compared to expectations for a more modest 1.0% decline, fuelling concerns over the impact of the ongoing sovereign debt crisis on the region’s largest economy.
Investors are awaiting Ben Bernanke’s testimony, U.S. initial jobless claims, as well as Great Britain’s interest rate decision on Thursday.
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