EUROPE MARKETS: Europe Stocks Charge Higher As Euro Soars

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) -- European investors returned from a two-day Christmas break to push stocks higher on Friday, playing catch-up with U.S. markets as the euro soared to a two-year high versus the dollar.

The Stoxx Europe 600 index gained 1.1% to end at 327.68, leaving it with a 2% gain in a holiday-shortened week and a rise of more than 17% since the beginning of the year.

A positive early tone on Wall Street helped add to gains. U.S. stocks later turned mixed but were on track for a solid weekly gain after hitting record levels earlier this week.

Germany's DAX 30 index rose 1.1% to close at a record high 9,589.39.

Some big moves among the major indexes were seen in London, where the FTSE 100 gained 0.8% to close at 6,750.87, reaching levels not seen since mid-November. In Paris, the CAC 40 index jumped 1.4% to 4,277.65.

But the rally, with many traders set to remain away for the rest of the year, sparked words of caution from analysts. "This is all about the free market and the cheap money which is available, and this is still pushing the markets higher," said Naeem Aslam, chief market analyst at Ava Trade, in emailed comments. "We think investors should be very careful in taking their profits."

Gains across Europe were also inspired by a sharp move higher for the euro(EURUSD), which surged to a high of $1.3893, according to FactSet, a level not seen in more than two years. The euro subsequently gave back some of the rally, but remains up around 0.5% at $1.3767. The jump came after German Bundesbank President Jens Weidmann, who is a member of the European Central Bank's Governing Council, reportedly warned that low inflation in the region should not be used as a reason to keep interest rates low. The ECB's main refinancing rate was cut to 0.25% in November.

Other reports said euro demand rose as banks adjusted positions for the end of the year.

The Stoxx 600 got a boost from several heavyweight players, such as Novo Nordisk AS (NVO), which rose 1.1% and was also part of the best-performing sector, drug stocks. Earlier in the week, Novo Nordisk said the Food and Drug Administration had approved its Tretton drug, used to prevent bleeding in patients with a rare clotting disorder.

Staying in the drug sector, Novartis AG gained 1.7%. The food and oil sectors were also among the day's best performers.

On the downside, shares of International Personal Finance PLC plunged nearly 16% after the home credit business said its Polish unit had been fined 2.4 million pounds by the Polish Office of Consumer Protection and Competition.

Greece's Athex Composite Index jumped 4.8%. Greek stocks have lost more than 2.5% this month.

On the downside, Turkish stocks and the lira were hit hard by political uncertainty in the country. The Istanbul National 30 index sank 1.1%, and the lira fell to fresh lows on Friday. Analysts said the government could call snap parliamentary elections to curb the uncertainty that has roiled markets for two weeks.

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