EUROPE MARKETS: Europe Stocks Surge As ECB, BOE Seen Dovish

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) -- The view that Europe's central banks are going to keep monetary policy easy for the foreseeable future triggered a rally for European stocks on Thursday, with investors brushing aside geopolitical worries that triggered losses the prior day.

The Stoxx Europe index jumped 2% to 291.28, more than reversing a 0.6% loss in the prior session. That was accompanied by a surge in the dollar across the board and a rally for U.S. stock futures, which were trading a short session as regular trading is closed for Independence Day.

Sending stocks flying in the afternoon, European Central Bank President Mario Draghi told reporters at a press conference that interest rates will remain low or go even lower for "an extended period of time." He added that risks surrounding the economic outlook continue to be on the downside.

"Investors were further impressed by Draghi's acknowledgment of being open to all options with regards to helping such nations, which opened the floodgates for more unconventional methods of fiscal stimulus measures," said Shavaz Dhalla, financial trader at SpreadEx.

But markets are also thin with the U.S. out. U.S. markets will return to action on Friday when all-important nonfarm payroll data will be released. Economists expect the economy added 155,000 jobs in June, less than the 175,000 added in May.

"It is entirely possible that when the bears return tomorrow they may remind the markets that Draghi's ambiguous statements are not enough to carry investors' sentiment in the long-term," Dhalla said.

Draghi's comments came on the heels of the Bank of England, where new Governor Mark Carney appeared to bring on a big change. Though rates stayed unchanged, the Monetary Policy Committee, in an unusual step, released a policy statement that many read as dovish as well. The pound tumbled more than 1% against the dollar, dropping to levels not seen since May.

"In the United Kingdom, there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time," said the central bank, which added that consumer price inflation could rise 12 months out, then pull back later.

Heavyweight banking stocks like HSBC Holdings PLC (HBC) and Barclays PLC (BCS) soared over 4% each and Lloyds Banking Group PLC (LYG) was up almost as much.

As a result, the FTSE 100 index soared 3% to 6,417.41, levels not seen since early May.

Portugal, Egypt worries subside

Portugal's stock market also rallied as a political crisis in that country appeared to be calming down. Risk appetite got another general bid as Egypt named a new interim president and oil prices fell from prior-day highs. Read the latest on Egypt

Among the big movers, Banco Comercial Portugues SA and Banco Espirito Santo SA each rose nearly 11%. On Wednesday, Portugal's stock-market regulator temporarily banned short selling of shares in those banks and two other companies until late Thursday. The PSI 20 index soared over 4% to 5,455.88, reversing a large portion of a 5% drop on Wednesday.

At his press conference, Draghi said the country is "in safe hands" and that it has "achieved remarkable results"

The yield on Portugal's 10-year government bond fell 18 basis points to 7.116%, well off a spike above 8% seen the prior day.

Leaders in Portugal were fighting to keep the government's coalition together after resignations by two ministers. The Wall Street Journal reported that Prime Minister Pedro Passos Coelho and the leader of the junior partner in the government held meetings late Wednesday to keep that coalition intact. Read: Five things to know about growing turmoil in Portugal

Broker moves also helped to lift shares of several stocks across Europe. Peugeot SA surged over 8% after Goldman Sachs upgraded shares to buy from neutral.

Shares of Kering SA rose over 4% after analysts at Exane Paribas upgraded the French luxury company to outperform from neutral.

Those gains helped the French CAC 40 index to rally 2.7% to 3,801.38, but it also plenty of help from banks as that sector powered ahead. Societe Generale SA climbed over 5% and BNP Paribas SA leaped 4%.

Heavyweight oil group Total SA (TOT) also provided a major boost for the French index, up over 2% and drug group Sanof SA (SNY) climbed more than 3%.

The German DAX 30 index shot up 2% to 7,995.12 as Deutsche Bank AG (DB) , beaten down the previous day by a downgrade from Standard & Poor's Ratings Services, rose nearly 3%. Allianz SE pulled its weight among financials with a more than 2% jump.

Shares of Daimler AG continued to gain after a prior-day broker upgrade, with shares leaping 3.4% and Volkswagen AG rose 3%.

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