Europe close: Stocks rally on strong economic data and stimulus hopes

European equities rallied on Tuesday as investors cheered encouraging German data and signs that further stimulus from the European Central Bank may be on the cards.

The benchmark Stoxx Europe 600 index closed up 2.49%, while France’s CAC 40 gained 2.77% higher and Germany’s DAX rose 2.41%.

Greece’s ATHEX composite was also firmly in the black after the country reached a preliminary deal with its international creditors over the next tranche of its bailout aid.

As of 1639 GMT, the euro was on the back foot against the main currencies, losing 0.49% and 0.38% against the pound and the dollar respectively and falling 0.24% against the yen, while Brent crude lost 0.86% to $44.18 a barrel.

"Some more cautious souls are still puzzling over why indices should suddenly be flavour of the month when they were so comprehensively routed last week, but if nothing else it is perhaps the merciful absence of Fed jawboning regarding a December policy move that has emboldened investors," said IG's senior market analyst Chris Beauchamp.

Positive data boosts investors

Sentiment was underpinned by encouraging German data and comments from the ECB’s chief economist Peter Praet, which added weight to expectations of further stimulus.

Praet told Bloomberg in an interview that it was key for the central bank to keep inflation expectations anchored, especially in a period of slack in the economy.

“There are risks and this is why we’re considering further action,” he said.

“A possible de-anchoring of inflation expectations together with a lot of slack is a dangerous cocktail.”

Meanwhile, figures released earlier showed German investor confidence rebounded strongly in November.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose from 1.9 last month, its lowest level in a year, to 10.4 in November, beating analysts’ expectations for a 6.0 reading.

However, the gauge monitoring confidence in the current environment slid from 55.2 to 54.4, slightly below analysts’ expectations for a 55.2 reading.

Across the Atlantic, US consumer prices rose for the first time in three months in October.

According to the Labor Department, CPI declined 0.2% month-on-month last month, up from the 0.2% decline recorded in September and in line with expectations.

On a year-on-year basis, the rate of growth rose from 0.0% to 0.2% in October, slightly above analysts’ estimates for a 0.1% gain.

In company news, German internet service provider United Internet gained 1.06% after posting an increase in third quarter core profit and revenues.

Volkswagen slid 0.26% news that its market share in Europe fell in October and that the company manipulated the carbon dioxide emission levels of more petrol vehicles than previously disclosed.