European stocks rally as Greece debt fears ease

European stocks ended higher yesterday, reversing all of the previous session's losses after Standard & Poor's affirmed its credit ratings on Greece's debt, while energy shares tracked a strong rally in oil prices.

Investors were also relieved after EU finance ministers backed plans to help debt-troubled Greece financially if needed. Late last Monday ministers from the 16-country eurozone said they had agreed on the "technical modalities" that would allow aid to be quickly rolled out.

The FTSEurofirst 300 index of top European shares closed one per cent higher at 1,061.17 points after rising to as high as 1,063.71 in the session, just a few points shy of a seven-week high reached last Friday. "Sovereign debt problems are not an issue for equities anymore. The market realised that the problem will be addressed, so Greece is not an issue at this juncture," said Franz Wenzel, strategist at AXA Investment Managers, in Paris.

BNP Paribas added 2.3 per cent, Credit Suisse gained 2.7 per cent, Credit Agricole added 3.6 per cent and Barclays gained 2.5 per cent.

Energy shares got a boost from buoyant oil prices, with US crude oil futures up $1.71 at $81.51 a barrel as the dollar retreated and ahead of OPEC's meeting. Royal Dutch Shell rose 1.3 per cent, Total added 0.6 per cent, and Repsol gained 1.1 per cent.

Around Europe, UK's FTSE 100 index gained 0.5 per cent, Germany's DAX index added 1.1 per cent, and France's CAC 40 rose 1.2 per cent.

Shares in carmakers Renault and Daimler both gained 2.3 per cent, lifted by reports the two car makers are in talks about an equity tie-up as part of a possible longer-term partnership.

European chipmakers also climbed, rallying after US firm Intel released its newest server chips, preparing for an expected rise in demand. Infineon surged 3.5 per cent, STMicroelectronics added 1.8 per cent and silicon firm Soitec soared 9.6 per cent.

Investors awaited the US Federal Reserve's rate decision and statement on the outlook for the world's biggest economy, yesterday.

The Fed is seen holding interest rates near zero and the central bank is widely expected to reiterate in its statement that high unemployment and low inflation warrant holding borrowing costs "exceptionally low" for "an extended period."

"With the benchmark rate widely expected to remain unchanged markets will turn their attention to any signs of future monetary tightening," said City Index analyst Nick Serff.

Investor risk appetite was on the rise yesterday in Europe, with the VDAX-NEW volatility index falling 3.4 per cent. The lower the volatility index, which is based on sell- and buy-options on Frankfurt's top-30 stocks, the higher is investors' appetite for risky assets such as equities.

The FTSEurofirst 300 is up 1.5 per cent so far in 2010, having suffered a sharp correction earlier in the year, hit in part by fears over Greece's sovereign debt woes.