European Stocks Advance for Second Week on Economic Recovery

European stocks rose for a second week, with the benchmark Dow Jones Stoxx 600 Index heading for its largest annual increase in a decade, amid signs the global economy is recovering.

Royal Dutch Shell Plc and Total SA led gains among oil producers as crude advanced after stockpiles of the commodity fell more than expected. Allied Irish Banks Plc rallied after saying it is looking at ways to raise capital next year. The Stoxx 600 gained 2.3 percent this past week to 251.9, extending its 27 percent rally this year. Most equity markets across Europe were closed yesterday and all are closed today for Christmas vacation.

A 59 percent surge on the regional benchmark gauge from March has been spurred by record-low interest rates in the U.S. and Europe and by governments worldwide that have committed about $12 trillion to revive credit markets and stimulate economic growth. Sales of existing homes in the U.S. topped forecasts Dec. 22, the latest sign the world’s largest economy is emerging from recession.

“Markets still look to be reasonably good value and we expect profits are going to grow pretty quickly next year,” said Kevin Gardiner, the London-based head of investment strategy at Barclays Wealth, in a Bloomberg Television interview.

Earnings for companies in the Stoxx 600 are expected to climb 29 percent next year, according to data compiled by Bloomberg. That compares with a forecast for a 7.4 percent increase in 2009 profits.

Earnings Growth

European equity strategists said earnings growth can push stocks 11 percent higher in 2010 following this year’s rally, according to a Dec. 22 survey. Goldman Sachs Group Inc. and Bank of America Corp., which underestimated the strength of this year’s gains, predict shares in the region may climb more than 20 percent over the next 12 months. Morgan Stanley is the only brokerage among 16 surveyed by Bloomberg to estimate a retreat by year-end, saying the withdrawal of government stimulus will weigh on equities.

Lower than normal trading volumes this week may continue next week, according to market analyst Cameron Peacock at IG Markets in Melbourne. All western European equity markets will be closed Jan. 1 for a holiday and the U.K. market is closed Dec. 28.

The U.K.’s FTSE 100 climbed 4 percent this week, while France’s CAC 40 rose 3.1 percent. Germany’s DAX gained 2.2 percent as Infineon Technologies AG surged on a revised sales estimate.

Shell

Shell, Europe’s largest oil producer, gained 6.7 percent and Total, the third-biggest, added 5.8 percent. Crude oil climbed as a government report showed a larger-than-expected decline in U.S. stockpiles and amid the latest signs the economy is recovering from its recession. Oil and gas companies rose more than any of the other 19 industry groups on the Stoxx 600.

Sales of existing U.S. homes rose more than forecast in November, to the highest level in more than two years, a National Association of Realtors report showed Dec. 22.

Allied Irish Banks surged 15 percent and Bank of Ireland soared 19 percent, the two biggest movers on the Stoxx 600 this week. Allied Irish shareholders approved its participation in a so-called bad bank that will buy loans from lenders at an average 30 percent discount, reflecting a fall in land values over the past two years. The bank said it may need to rely on the government after it transfers loans to the bad bank. The government already has a 25 percent stake in each of the two largest Irish banks.

Infineon, Debenhams

Infineon Technologies climbed 5.9 percent after Europe’s second-largest chipmaker said revenue will grow by a better- than-expected “high single digit” in the quarter ending Dec. 31 on improved sales in the automotive and industrial units.

Debenhams lost 1.5 percent, paring its rally this year to 234 percent. UBS AG added the U.K.’s second-largest department-store chain to its “least preferred” list of stocks. UBS said “we see a higher risk to Christmas sales performance given the strong showing last year, a mild autumn and the recent cold snap which we think may have affected footfall,” according to a report sent to clients.