[LONDON] European shares climbed to a two-week high on Thursday, boosted by a rally in mining stocks, after the US Federal Reserve left interest rates unchanged and projected a less aggressive path for hikes next year and in 2018.
The Fed, however, signalled it could still tighten monetary policy by the end of this year as the labour market improved further. Fed Chair Janet Yellen said US growth was looking stronger and rate increases would be needed to keep the economy from overheating and fuelling high inflation.
The pan-European Stoxx 600 index rose for a second straight session and ended up 1.6 per cent at its highest closing level since Sept 9. However, the index is still down around 5 per cent so far this year.
"Markets are getting support not only from the inaction of the Fed but also the relatively dovish comment by Janet Yellen. A rate hike is probable in December, but it has once again become clear that rates will go up only very gradually," said Philippe Gijsels, head of research at BNP Paribas Fortis. "With The Fed out of the way for some time, markets will start to focus on other things. The presidential election in the US is just one of them. Volatility is probably the only certainty in the remaining months of the year."
Miners led the European stock market higher as the Fed's decision to keep rates unchanged pushed down the US dollar on currency markets, thereby making commodities cheaper for holders of other currencies.
The Stoxx Europe 600 Basic Resources index rose 3.9 per cent after hitting its highest level since August 2015. Shares in ArcelorMittal, Glencore and Fresnillo were all up more than 5 per cent.
Energy shares were also in demand after oil prices also rose on a weaker US dollar, extending gains from the previous session when a surprise third consecutive weekly US crude inventory draw tightened supply.
The European oil and gas index rose 2.4 per cent, helped by a 2.4 to 5.1 per cent rise in BP, Total and Saipem.
EDF inched 0.4 per cent higher, underperforming the market after the French nuclear power utility said it was cutting its 2016 earnings expectations due to lower output.
Banco BPI rose 3.6 per cent after Spain's Caixabank launched a bid for the Portuguese lender and slightly raised its offer price. Caixabank shares fell 3.1 per cent.