EUROPE MARKETS: Europe Stocks Cheer U.S. Economy, Low Rates

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets rallied on Monday, rebounding after a selloff at the end of last week, as the prospect for continued low rates in Europe and a stronger U.S. economy overshadowed fears of less stimulus from the Federal Reserve.

Investors awaited U.S. bellwether Alcoa Inc. (AA) to kick off the earnings season later in the day.

The Stoxx Europe 600 index rose 1.4% to close at 292.37, after falling 1.3% on Friday.

Among major movers, shares of Hikma Pharmaceuticals PLC jumped 5.6% in London after the drug maker said it now expects revenue growth around 17% in 2013, up from the 13% previously expected.

Banks were also among major advancers, with shares of Banco Comercial Português SA rising 6.9%, Royal Bank of Scotland Group PLC (RBS) up 4.4% and Société Générale SA 2.5% higher.

The broader stock market regained most of the territory it lost on Friday, when a stronger-than-expected jobs report in the U.S. sent stocks lower in Europe on fears of less stimulus from the Federal Reserve.

Fed Chairman Ben Bernanke has said the central bank could start scaling back its $85-billion-a-month asset-purchase program if data such as new jobs shows the economy is growing as expected. That has left investors worried that less liquidity in the financial system will create market turmoil.

U.S. stocks were initially also weighed by the data, but closed firmly higher on Friday as optimism over an improving U.S. economy overshadowed the prospects of a reduction in the Fed's easing program.

Michael Hewson, senior market analyst at CMC Markets in London, said that European investors on Monday also were convinced that the upbeat jobs report is a positive factor for the equity market.

"I think we can say that markets are coming around to the idea that Fed tapering is not just a bad thing. It comes with an improvement in economic data and monetary policy will remain accommodative," he said.

"But I think we'll continue to see markets trade in a choppy range until we get some kind of idea when the Fed is going to taper. That's really what the markets want to know. The estimates range from September to [first quarter] 2014 and that nervousness will make markets extremely choppy. You have to be brave to say markets will see new highs and it will also depend on the earnings season," he added.

The International Monetary Fund's managing director, Christine Lagarde, warned on Sunday that central banks must be careful when they exit expansive monetary policy, according to The Wall Street Journal. Read: IMF takes another swipe at U.S. budget cuts

U.S. stocks rose on Monday, after light trade on Friday on the back of the Fourth of July holiday on Thursday.

After the closing bell on Monday, aluminum giant Alcoa reports quarterly results, signaling the unofficial start of the second-quarter earnings season.

"This certainly has the potential to provide some pace for markets as a whole with investors looking increasingly anxiously at how balance sheets are stacked up, as the era of very cheap money threatens to come to a close," said Mike McCudden, head of derivatives at Interactive Investor, in a note.

Greek rally

In Greece, the Athex Composite index rose 2.1% to 858.40. The country's "troika" of international lenders -- the European Commission, the European Central Bank and the International Monetary Fund -- reached a staff-level agreement with the Greek authorities on new economic and financial policies needed to ensure the bailout program remains on track. Euro-zone finance ministers met in the afternoon to discuss Greece's next tranche of bailout money. Read: Greeks march in protest against bailout job cuts

Meanwhile, European Central Bank President Mario Draghi reiterated his message from last week that interest rates will remain low or go even lower for an extended period of time, according to media reports.

Germany's DAX 30 index gained 2.1% to 7,968.54, even as data showed exports slumped in May.

Shares of BMW AG gained 2.6% after the car maker said group sales rose by 6% in the first half of the year, while June sales reached an all-time high.

Other car makers tracked BMW higher, with shares of Volkswagen AG up 1.5% and Daimler AG up 2%.

France's CAC 40 index added 1.9% to 3,823.83. Shares of Total SA rose 2.3% after a French court acquitted the oil giant and its chief executive Christophe de Margerie of corruption in the Iraq oil-for-food case.

The U.K.'s FTSE 100 index gained 1.2% to 6,450.07. BP PLC (BP) climbed 1.4%, as a federal appeals court was set to hear the company's case that the 2012 settlement in the Deepwater Horizon oil spill has been misinterpreted by administrators.

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