Europe close: Stocks bounce back, but Italian banks thrashed

European stocks closed higher on Tuesday, taking their cue from gains in Asia as soft Chinese data prompted hopes of more stimulus from Beijing and the governor of the Bank of England struck a somewhat dovish note on the timing of the first interest rate hike.

The benchmark Stoxx Europe 600 index advanced 1.31%, while France’s CAC was 1.97% firmer and Germany’s DAX another 1.50%.

Italy’s FTSE Mib was also in the black, but gains were more measured as banks such as Banco Popolare and Monte dei Paschi came under heavy pressure again after the European Central Bank requested data on their bad loan portfolios.

Overnight, figures showed China’s economy grew 6.8% in the fourth quarter in comparison to the previous year, down from 6.9% in the third quarter - marking its slowest growth since 2009.

Full-year growth, meanwhile, fell to 6.9%, which was it lowest level since 1990 and a touch below expectations.

“While these numbers are slightly disappointing they don’t point to a sharp slowdown, however it does raise the question as to what further steps to stimulate the economy policymakers will take in the coming weeks,” said Michael Hewson, chief market analyst at CMC Markets.

Speaking in the afternoon, the BoE chief told an audience that "now is not yet the time to raise interest rates".

Economists at RBS took note of Carney's words, pushing back their forecast for the first rise in the Bank Rate from August 2016 to February 2017.

Oil prices rebounded from recent lows, even as the International Energy Agency warned that prices will fall further as the market remains oversupplied until at least late 2016.

West Texas Intermediate was up 1.1% at $29.27 a barrel while Brent crude was 3.7% higher at $29.95.

Iran’s return to the market was unlikely to be offset by production cuts from other countries, the IEA said.

On the corporate front, Renault was on the front foot on news that the French car maker will recall more than 15,000 vehicles to bring them in line with emissions standards.

Unilever advanced as its full-year sales beat expectations, although the company warned of tough times ahead.

German online clothing retailer Zalando was a high riser after posting 30% growth in fourth quarter revenue.

In London, Prudential gained after the insurer said its solvency capital ratio was 190% at end-June, a little better than expected.

Novozymes slumped after the Danish enzyme-maker cut its longer-term sales forecasts.

Investors digested macroeconomic releases

German investor confidence came in a little better than expected, according to the latest survey from the ZEW Center For European Economic Research in Mannheim.

The index of investor and analyst expectations fell by 5.9 points to 10.2 in January, following two consecutive increases. Still, the reading was ahead of economists’ expectations for 8.2.

The index for current expectations improved slightly, however, rising 4.7 points to 59.7 and beating expectations for a reading of 54.

Elsewhere, figures from Eurostat showed Eurozone inflation improved in line with expectations in December, driven by higher prices charged at restaurants and cafes.

Earlier, data showed consumer prices in Germany were unchanged in December from the previous month, and up 0.2% on the year.