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European stocks rebound as Yellen clarifies Fed rate policy

[LONDON] European stocks jumped from an eight-month low after Federal Reserve Chair Janet Yellen said she's ready to raise rates this year, indicating recent market turmoil won't derail the US recovery.

Her comments helped clarify the Fed's thinking, after the central bank's decision to hold rates last week confused investors about the trajectory of US rates and increased stock volatility. Following a selloff yesterday that wiped out its 2015 gains, the Stoxx Europe 600 Index closed 2.8 per cent higher today.  All 19 industry groups rose at least 1 per cent, and Germany's DAX Index rebounded 2.8 per cent from its lowest level since December. Italy's FTSE MIB Index rallied the most among western-European markets, up 3.7 per cent.

"It's more of a relief rally supported by some clarity from Yellen," said Carsten Hilck, a fund manager who oversees about US$6.6 billion at Union Investment in Frankfurt. "Markets will continue to be choppy, but they were clearly oversold in the past two days. Valuations started to get attractive. The DAX has been especially punished so we started buying German stocks yesterday."

Europe's benchmark gauge dropped 18 per cent from a peak in April through yesterday, taking its valuation to 14.6 times estimated earnings, down from a multiple of 17.1 in July. Today's biggest advance in a month helped the Stoxx 600 trim a second weekly decline. It's down 1.6 per cent for the period as carmakers tumbled after Volkswagen AG said it cheated on US diesel-emission tests.

Volkswagen fell 3.8 per cent, reversing an intraday advance of as much as 4.3 per cent, after people familiar with the matter said executives in Germany controlled key aspects of the faked tests.

Carmakers, Deals  Other automakers clawed back losses today, with BMW AG, Daimler AG and Renault SA rising 2.2 per cent or more.

Some stocks moved on deal news today. Quintain Estates & Development Plc jumped 7.6 per cent after Lone Star Funds raised its offer for the housing developer and property investor. Sanofi added 3.1 per cent as people familiar with the matter said the drugmaker may sell its bio-surgery and renal units.

Synergy Health Plc soared 42 per cent after a US judge denied a move by US officials to block the company's takeover by Steris Corp, paving the way for a US$1.9 billion merger.

Adidas AG gained 4.1 per cent after peer Nike Inc reported quarterly earnings that beat estimates.

Zodiac Aerospace slid 6.8 per cent after American Airlines Inc dropped the company as a supplier of seats on some of its planes, citing delivery delays.

BLOOMBERG