EUROPE MARKETS: European Stocks Near 7-year Highs On ECB Stimulus Hope

By Carla Mozee, MarketWatch Germany lowers growth outlook

LONDON (MarketWatch) -- European stocks jumped to nearly seven-year highs Friday, wiping out the previous session's sharp losses, on signs the European Central Bank may introduce quantitative easing in January after all.

The Stoxx Europe 600 rose 1.8% to 350.97, its strongest closing level since January 2008, according to FactSet data. The benchmark extended its rise after the U.S. jobs report for November showed the economy added 321,000 jobs, the largest gain since early 2012.

On the European benchmark, only the energy-related and mining sectors finished lower. Shares of Norwegian oil-services company Seadrill Ltd. dropped 5.9%. Saipem SpA fell 6.2% after the company late Thursday received notice to suspend marine activities for the South Stream gas pipeline project. Russian President Vladimir Putin canceled the project earlier this week.

A Bloomberg report late Thursday raised fresh hopes about ECB's stimulus plans, as it said the central bank expects to consider a proposal for broad-based asset purchases, including sovereign debt, next month. The report cited two euro-area central bank officials. CNBC also said a source told it the bank will consider quantitative easing in January.

On Thursday, the Stoxx 600 dropped 1.3%, for its worst percentage decline since mid-October, as ECB President Mario Draghi spoke at a press conference. He said policy makers are preparing for the possibility of easing measures in early 2015, but stressed that if any action is taken, it won't necessarily happen at the Governing Council's next meeting. The ECB is slated to meet on Jan. 22.

Mike O'Rourke, chief market strategist at JonesTrading, noted that the "surprise" Bloomberg report was published three hours after the end of Draghi's news conference.

"There was once a time when the markets would recognize the deception and let central bankers know their credibility was questionable," O'Rourke said in a note Friday.

Data: Calls for the ECB to ramp up stimulus measures have been spurred by a string of weak economic data from the eurozone. The latest downbeat update came Friday, as Germany's central bank slashed its growth forecasts for 2014 and further out. The Bundesbank now expects adjusted growth in gross domestic product of 1.4% in 2014, lower than a forecast of 1.9% in June. The reduction came although German industrial orders rose by a stronger-than-anticipated 2.5% in October.

Also, a second reading of eurozone gross domestic product in the third quarter confirmed a lackluster growth rate of 0.2%.

The euro (EURUSD) bought $1.2300 compared with $1.2436 late Thursday, pushed lower after the blowout U.S. jobs report. The shared currency had risen on Thursday against the greenback on the prospect that the ECB would hold off on launching stimulus efforts.

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