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Europe: Rally in basic resources stocks helps European indices

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[LONDON] European mining shares rose more than 3 per cent on Tuesday, underpinning Europe's benchmark Stoxx 600 index as the global reflation trade in the wake of Donald Trump's victory in the US presidential election continued.

The pan-European Stoxx 600 index ended up 0.2 per cent after climbing to its highest level since Nov 10. The index extended the previous day's gains of 0.25 per cent and mirrored a rise on Wall Street.

All three major US stock indexes set record closing highs on Monday. Small caps also advanced, pushing the Russell 2000 index to a record high close, with the session marking the first time all four indexes hit closing records on the same day since Dec 31, 1999. Wall Street posted record highs again at the open on Tuesday before paring gains.

The European Basic Resources index, which has now doubled from its January lows, was the best performing sector index. It rose 3.4 per cent after prices of major industrial metals such as copper and aluminum increased.

"I am fairly bullish on miners and banks and have an 'overweight' recommendation on both the sectors. The focus of markets has shifted to the expected increase in infrastructure and defence expenditure in the United States," Christian Stocker, strategist at UniCredit in Munich, said.

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"As a result of such 'reflation expectations', long-term bond yields have been increasing and industrial metals have been rallying. The reallocation that has started in these sectors will continue."

Shares in Anglo American, BHP Billiton, Antofagasta and Glencore were all up 3 to 7.6 per cent. The Stoxx Europe 600 banks index rose 1 per cent, making it the third biggest gainer.

European shares slumped in a knee-jerk reaction after results showed in early November that Mr Trump had won the US presidential election. However, the market rebounded the same day and has gained 4.5 per cent from an intra-day low on Nov 9.

Equities were boosted by Mr Trump's election promises to increase investment in infrastructure projects and work on a fiscal stimulus programme. However, the lack of policy details have prompted investors to stay cautious.

"Political uncertainty in the United States has diminished substantially even though we do not know the shape of Trump's policies and government appointments yet," Lorne Baring, managing director of B Capital Wealth Management, said. "The market is reacting to the better political environment and, bar the Italian referendum which will probably be another source of concern, there is a sigh of relief that the year's turbulent and somewhat surprising politics are behind us."

Italian Prime Minister Matteo Renzi has said he could resign if he loses the Dec 4 referendum on constitutional reforms.

Shares in French construction and concessions company Vinci fell as much as 18 per cent after media picked up a hoax statement saying it would revise its 2015 and 2016 accounts and fire its finance director. Vinci recovered to end down 3.8 per cent after the company denied the rumours.

Elsewhere, Rotork shares surged 13 per cent after the Valve maker said it anticipated its revenues coming in towards the top end of market expectations.

Essilor shares fell 6 per cent after the firm cut its outlook.


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