Obama plans boost Euro shares, miners jump

Last updated 07:45 27/01/2011

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European equities hit a one-week closing high on Wednesday as the US President Barack Obama's proposal of corporate tax cuts boosted market sentiment, while stronger metals on hopes of improving demand helped miners.

Expectations that the Federal Reserve, wrapping up a two-day meeting later on Wednesday, will acknowledge an improving US economic outlook added to the positive tone. Strong US home sales data also helped the market.

The FTSEurofirst 300 index of top shares finished 0.8 percent higher at 1,152.71 points - the highest since Jan. 18. The index, which fell 0.6 percent in the previous session, is up 2.8 percent this year after gaining 7.3 percent in 2010.

Resource-related shares topped the gainers' list, as key base metals prices jumped on a weaker dollar and on hopes that an improvement in the global economy will increase metals demand. The STOXX Europe 600 Basic Materials index rose 2.5 percent, while Anglo American gained 2.6 percent.

"Obama is trying to convey his hopes that the health of corporate America is important. He would like to simplify the tax system and keep corporate tax rates low. That has been taken well by investors," said Keith Bowman, equity analyst at Hargreaves Lansdown.

"Investors are also expecting that comments from the Fed will be generally supportive. The focus is still on corporate results and so far the earnings season has been generally good."

In his State of the Union address to Congress late on Tuesday, Obama asked lawmakers to work with him to cut the corporate tax rate and simplify the tax code, moves that could lead to higher corporate profits.

"Obama's comments seems to have lifted sentiment and helped calm some nerves. It was a very bullish speech and we can expect to see more of the same from the Fed," said David Jones, chief market strategist at IG Index.

The market was also supported by macroeconomic figures showing new US single-family home sales raced to their highest in eight months in December while prices were the highest since April 2008, raising optimism for a housing market recovery.

FOCUS ON FED

Focus was on the policy-setting meeting of the Federal Open Market Committee, which will likely take note of growing reasons for economic optimism. Consumer spirits are rising, factory activity is strengthening and jobless claims are sliding.

"The Fed will need to be wary of the recent slump in UK growth and not wish to suffer the same thing so investors are hoping to hear that they will remain vigilant in ensuring growth can be sustained," said Angus Campbell, head of sales at Capital Spreads.

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Carmakers also gained ground, with the STOXX Europe 600 Automobiles & Parts index up 2.5 percent. Porsche rose 7 percent after a senior family member said its merger with Volkswagen was on the right track. Volkswagen rose 3.3 percent.

In the energy sector, Repsol rose 2.1 percent after Petrobras, its partner in Brazil's offshore Carioca block, struck oil again in the area.

Swiss engineering group ABB rose 1.5 percent after it said it expected to report double-digit net income growth on winning a large number of power infrastructure orders in Europe and the Middle East in the fourth quarter.

Across Europe, the FTSE 100, Germany's DAX and France's CAC 40 rose 0.7 to 1 percent.

- Reuters

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