Europe close: Investors react to Trump speech, reflation trade on again

European stocks shot higher, buoyed by continuing speculation of higher government spending in the states with a weaker euro on expectations of a March US interest rate hike to boot.

In his address to the US Congress on Tuesday President Donald Trump struck an upbeat but measured tone, saying he was open to a broad immigration reform bill but was short on details when it came to his economic plans - apart from a $1trn investment in infrastructure.

"The time is right for an immigration bill as long as there is compromise on both sides," Trump told reporters at the White House, where he spoke of a "new chapter of American greatness".

By the closing bell, the benchmark Stoxx Europe 600 index was up 1.47% to 375.69, Germany’s DAX rose 1.97% to 12,067.19 and France’s CAC 40 gained 2.10% to 4,960.83.

Meanwhile, Brent crude was off 0.23% to $56.38 per barrel and West Texas Intermediate slipped 0.24% to $53.88.

The euro fell in early trading after Federal Reserve officials John Williams and James Bullard argued on Tuesday that there was a case for higher interest rates.

That weighed on the European single currency, although by the closing bell it had recovered to trade just 0.07% lower versus the dollar to 1.0566.

"Equities are embracing a more Presidential Trump whose congressional address offered just enough to rekindle bullishness (infrastructure plus defence spend and tax breaks) even if detail was distinctly lacking. Then again markets move more on hopes and fears than confirmation and facts. Hence the old adage, ‘buy the rumour, sell the fact’", said Mike van Dulken, head of research at Accendo Markets.

"A stronger dollar after hawkish comment from the Fed's Dudley (March rate hike more likely) is also offering helpful weakness in sterling and euro to boost the FTSE and DAX."

On the data front, Markit's final Eurozone manufacturing purchasing managers' index printed at 55.4 in February, up from 55.2 the previous month but down a touch from the 'flash' estimate of 55.5. Still, this marked the highest level since April 2011. A reading above 50 signals expansion, while a reading below points to contraction.

Companies indicated that domestic demand remained solid in a number of markets, while the weak euro contributed to the fastest growth of new export business for almost six years.

German inflation rose 2.4% in February year-on-year, the highest level since 2011, while unemployment fell by 14,000 last month, more than the 10,000 expected, and its 19th consecutive monthly fall.

Elsewhere in Paris, French presidential candidate François Fillon cancelled an appearance at a farm fair, a key stop to court the French rural vote, in order to appear before magistrates about the fake job scandal concerning his wife.

In corporate news, international distribution and outsourcing group Bunzl rose 4.01% after agreeing to buy US-based Diversified Distribution Systems for an undisclosed sum, while building materials group CRH gained 4.01% as it said pre-tax profit surged 68% in 2016.

Fiat Chrysler was up 1.65% despite being subpoenaed by US federal and state authorities about alleged excess diesel emissions from some of its vehicles.

Eni was 3.31% stronger after the Italian oil company approved the issue of up to €2bn in fixed-income securities, possibly in other currencies.