By Dow Jones Business News, September 16, 2013, 12:13:00 PM EDT
By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- Europe's benchmark stock index closed at the highest level in more than five years on Monday
after former U.S. Treasury Secretary Lawrence Summers pulled out of the race to become next U.S. Federal Reserve
Receding fears of a U.S. military intervention in Syria also supported the market.
The Stoxx Europe 600 index gained 0.6% to 313.42, marking the highest close since June 2008.
Germany's DAX 30 index rallied 1.2% to 8,613.00, the highest closing level on record.
France's CAC 40 index put on 0.9% to 4,152.22, while the U.K.'sFTSE 100 index gained 0.6% to 6,622.86.
"There are two reasons for the rally today. The U.S. agreement with Russia that Syria will dispose of its chemical
weapons makes a military conflict in the short term less likely. And the second is Larry Summers pulling out of the race
of becoming Fed chair. There was widespread uncertainty about what his stance on monetary policy would be and I think
markets were a little concerned by that," said Michael Hewson, market analyst at CMC Markets.
But investors shouldn't expect this rally to continue with several key events on tap this week, he said, including a
Fed meeting, a vote in Italy on whether to expel Silvio Berlusconi from parliament and minutes from the Bank of
England's latest meeting.
"It's not a sustainable rally. Markets were looking for a reason to rally and they found two, but we could see a bit
of a cautionary pullback," Hewson said.
Among notable movers in the European benchmark index, shares of Hennes & Mauritz AB climbed 4% after the Swedish
clothing retailer said same-store sales rose 4% in August.
Shares of the world's largest insulin maker Novo Nordisk AS ( NVO ) rose 1.5% after Barclays lifted the firm to
overweight from underweight, based on a brighter outlook for the U.S. insulin market.
Boosted by Summers
For the broader European stock markets, investors welcomed news that Summers won't be running for next Federal Reserve
Chairman, saying he has "reluctantly concluded that any possible confirmation process for me would be acrimonious."
Many analysts considered Summers, previously seen as the front runner for the post, as a relatively hawkish pick for
the central bank's top post and as more skeptical toward quantitative easing than Janet Yellen, the Fed's vice
Yellen has also been one of the front-runners to succeed Ben Bernanke and Summers's move potentially paves the way for
her to become the next Fed chief.
Analysts at Danske Bank said in a note that Yellen is more likely to continue the current policy at the Federal
Reserve, which is seen as positive for both the equity market and U.S. Treasurys.
"That said, the market will probably remain cautious so close to the FOMC meeting. Hence the full impact of Summers'
withdrawal will be seen only if the current Fed manages to deliver a credible dovish message amid the initiation of QE
tapering at Wednesday's meeting. If managed, such a dovish message would now have a much bigger impact with Yellen
standing next in line," the analysts said.
The Federal Open Market Committee meets on Tuesday and Wednesday to discuss monetary policy, with analysts speculating
the central bank could start scaling back its $85-billion-a-month asset-purchase program. Also: What to watch for beyond
U.S. stocks traded higher, while Treasury yields moved lower.
Markets were further supported by developments in the Syria conflict after the U.S. and Russia agreed on a framework
for Syria to destroy its chemical weapons. The agreement halted preparation for a possible U.S. attack on Syrian
government targets in retaliation for the apparent use of chemical agents on civilians last month.
On the data front in the U.S. on Monday, the Empire State manufacturing index edged down to 6.3 in September from 8.2
in August, falling short of analyst expectations.
Additionally, industrial production rose 0.4% in August, the largest monthly change since February, data showed.
Back in Europe, Air France-KLM SA jumped 5.5% after French newspaper Les Echos reported that the airline may cut more
jobs than it had indicated in a new cost-cutting plan.
In the same sector, shares of Ryanair Holdings PLC climbed 3.9% after the budget airliner said it agreed to a 10-year
growth deal at Stansted Airport in London.
Shares of Siemens AG ( SI ) moved 1.2% higher after Deutsche Bank lifted the European industrial goods and services
sector to overweight and mentioned the German conglomerate as one of the preferred stocks.
Vedanta Resources PLC picked up 2% in London after the miner appointed Tom Albanese as chairman of its subsidiary
Vedanta Resources Holdings Ltd. Albanese stepped down as Rio Tinto's chief executive earlier in the year.
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