EUROPE MARKETS: European Stocks Rally After ECB, BOE Rate Calls

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets rallied on Thursday after European Central Bank President Mario Draghi reiterated that the bank has plenty of tools left to ease further if demanded by economic conditions.

Upbeat earnings reports also helped lift sentiment, including results from Daimler AG, Vodafone Group PLC and Akzo Nobel NV.

Climbing for a second day, the Stoxx Europe 600 index rose 1.5% to end at 322.77, the highest closing level in a week.

Among notable movers, shares of Daimler added 2.6% after the German car maker said it closed out 2013 with record earnings and gave an upbeat outlook for 2014.

Shares of Vodafone (VOD) picked up 3.7% after the telecoms firm reported a narrower-than-expected fall in third-quarter revenue.

Akzo Nobel NV (AKZOY) rallied 6.5% after the Dutch paint and coatings firm said it will continue to work on cutting costs to offset expected soft demand in the year ahead.

Danske Bank AS climbed 3.7% after the Danish lender proposed paying a dividend for the first time in five years.

On a more downbeat note, shares of H. Lundbeck AS dropped 2.9% after the pharmaceutical firm trimmed its 2014 guidance as it posted a sharp drop in fourth-quarter profit.

All eyes on the ECB

More broadly, central-bank meetings were the focal point for Thursday's action. The European Central Bank left its main refinancing rate unchanged at a record low of 0.25%, leaving some analysts surprised. Economists were split ahead of the rate call as to whether the ECB would lower rates even further in response to low inflation and tighter money-market conditions.

Some argued a rate cut would be premature, while others believed the central bank was keen to be ahead of the curve on inflation and therefore would ease policy further. During the following news conference ECB President Mario Draghi addressed the inflation concerns, but indicated he wasn't worried about deflation. Instead, he explained that the low inflation partly currently is due to low energy and food prices, which benefit consumers and usually don't turn into deflation.

He stressed, however, that the ECB remains ready to take "decisive action" if needed.

"Our reading is that the [Governing Council] is close to deploying another instrument, possibly next month if the ECB's medium-term inflation projections are sufficiently weak or if money market tensions do not subside sufficiently," said Philip Shaw, chief economist at Investec Securities, on a note.

He argued that further action won't necessarily be a rate cut, but could include nonstandard measures.

Atif Latif, director of trading at Guardian Stockbrokers, also said the reassurance from Draghi was enough to encourage investors to take on more risk after a steep decline in the beginning of the month.

Earlier in the day, the Bank of England left the size of its bond-buying program unchanged and held its key lending rate at a record low of 0.5%, where it has stood since March 2009. The central bank's Monetary Policy Committee left its asset purchases, the centerpiece of its quantitative-easing strategy, at 375 billion pounds ($611 billion).

After the decisions, most country-specific indexes closed in positive territory. The U.K.'s FTSE 100 index gained 1.6% to 6,558.28, while France's CAC 40 index put on 1.7% to 4,188.10. Germany's DAX 30 index rose 1.5% to 9,256.58.

Shares of AstraZeneca PLC (AZN) dropped 1.6% in London after the drug maker said it swung to a loss in the fourth quarter, as it suffered a $1.76 billion impairment charge due to disappointing sales of its diabetes drug Bydureon.

Outside the major indexes, shares of Imagination Technologies Group PLC rallied 14% after the technology firm said it extended its multiyear licensing agreement with Apple Inc. (AAPL).

Volvo AB advanced 4.6% after the truck maker said it will cut 4,400 jobs in 2014 as it reported a slide in fourth-quarter profit.

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