EUROPE MARKETS: European Stocks Build On Gains After Inflation Data

By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- Stocks in Europe extended gains Tuesday after a key report showed inflation in the eurozone falling to a multiyear low.

Underscoring persistently low inflation in the region, Eurostat said consumer prices in September were 0.3% higher than in September of last year, marking the lowest annual rate of inflation since October 2009.

The data may put more pressure on the European Central Bank to launch full-scale quantitative easing. The ECB, which meets Thursday, has already enacted a series of measures aimed at stimulating economic growth and inflation, but inflation remains well below the bank's goal of just under 2%.

Most analysts say the bank, led by President Mario Draghi, on Thursday will, however, likely focus more on details of its "private" QE program, which includes purchases of asset-backed securities and covered bonds. The Financial Times late Tuesday reported Draghi will push for the central bank to accept loans from Greek and Cypriot banks that carry so-called junk ratings.

Investors sifted through a mixed round of data on Tuesday. German unemployment in September rose unexpectedly, indicating softening in the labor market in Europe's largest economy. From France, consumer spending rose in August, a rebound from July, but a decline in producer prices in August accelerated to a rate of 0.3%.

In Italy, the unemployment rate fell to 12.3% in August from 12.6% in July, but the rate of youth unemployment climbed to a record high.

Markets: The Stoxx Europe 600 rose 0.6% to 343.08, bumping up from a 0.2% gain ahead of the inflation report. The index rose 0.3% in September and increased by 0.4% for the third quarter, marking the fifth straight month of gains.

The euro (EURUSD) fell to two-year lows against the dollar, buying $1.2621 compared with $1.2694 late Monday in New York. The euro suffered a quarterly loss of roughly 7.8% against the greenback, the worst monthly performance since June 2010.

Also after the euro inflation report, Germany's DAX 30 rose 0.6% to 9,474.30, and France's CAC 40 gained 1.3% to 4,416.24. Italy's FTSE MIB surged 1.8% to 20,892.11.

Among session advancers, shares of Royal Bank of Scotland rose 1.5% after the bank said losses from bad loans in 2014 are likely to be "significantly lower" than the GBP1 billion ($1.6 billion) that it had anticipated.

The U.K.'s FTSE 100 finished 0.4% lower at 6,622.72, with a profit warning from retailer Next PLC weighing on its shares.

A report from Office for National Statistics said the U.K. economy expanded 0.9% in the second quarter compared with the first, higher than a previous estimate of 0.8% growth quarter-on-quarter.

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