[BENGALURU] A surge in banks, miners and automakers galvanised European stocks on Friday, as continued rotation into the cyclical sectors amid signs of progress in US-China trade talks drove the Stoxx 600 to its fourth straight week of gains.

In a week that saw trade tensions between Washington and Beijing thaw and the European Central Bank cut rates deeper into negative territory and relaunch bond purchases with no scheduled end-date, banking shares were the star performers.

Euro zone banks, which wavered after the ECB decision on Thursday, rallied 2.4 per cent, with analysts citing the central bank's easing of the terms of its long-term loans to banks and introduction of tiered deposit rate as offsetting the pain of negative rates.

The euro zone banks index, up 7 per cent on the week, tacked on its biggest weekly gain since March 2017.

"The new tiering system for the banks ought to help the North European banks that have built up large excess deposits while the cheaper loans should help the funding costs of the Southern banks," Jefferies analysts wrote in a client note.

According to Jefferies' calculation, the old system (without tiering) was costing euro area banks 7.14 billion euros per year, while the new system will cost them 5.62 billion euros per year.

German banks are set to benefit by 295 million euros, Italian banks by 221 million euros and Spanish banks by 234 million euros, analysts at Jefferies said.

Indeed, Italian banks rallied with a 3.2 per cent gain, with main indexes in Milan and Madrid rising between 0.4 per cent and 0.6 per cent, respectively.

Caixabank and Banco Sabadell both up more than 7 per cent, were the top gainers on the Stoxx 600.

Deutsche Bank rose 3 per cent after becoming the first of 16 financial services companies to resolve claims that it conspired to rig prices of bonds issued by Fannie Mae and Freddie Mac.

In a change of heart among investors who had been buying defensive stocks for much of this year on worries about global trade disputes tipping the world into a recession, momentum stocks such as automakers and miners saw a huge demand this week.

Trade-reliant commodity-linked miners jumped 2.7 per cent, leading gains among major European sectors, and automotive stocks were boosted by fresh indications that a prolonged trade war between the United States and China was thawing.

After Beijing and Washington made tariff concessions to each other, US President Donald Trump said he could consider an interim trade deal with China ahead of high-level negotiations in October.

Both the pan-European Stoxx 600 index and the euro zone only index closed about 0.3 per cent higher on the day, while tacking on more than 1 per cent for the week.

The food & beverage index was the biggest decliner on the Stoxx 600 as investors continued to rotate out of defensive stocks.

Roche Holding was the biggest boost to main stocks index as it reported positive data from a primary progressive MS (PPMS) study.

Shares of Atlantia tumbled 8 per cent after three employees of companies owned by the Italian infrastructure group were placed under house, as part of an investigation into the safety of motorway viaducts following the collapse of a bridge in Genoa.

Traders said the arrest revived concerns that the government could make good on a threat of revoking the company's motorway concession.

The London Stock Exchange jumped another 3.6 per cent after it rejected the Hong Kong bourse's US$39 billion takeover offer, opting to stick with its planned purchase of data and analytics group Refinitiv.

Thyssenkrupp's shares rose 2 per cent to a fresh ten-week high after Singapore's state investor GIC raised its stake in the ailing German conglomerate. Its shares have surged some 40 per cent since mid-August, boosted by hopes for a sale of its prized elevator division.

REUTERS