European stocks rally after Chinese, German data

LONDON (MarketWatch) � Stocks rose in Europe for a second session Tuesday, as better-than-expected growth data from China and positive economic news from Germany inspired an asset rally.

The Stoxx Europe 600 index XX:SXXP �rose 0.9% to end at 253.27. It gained 0.8% on Monday, snapping a three-day losing streak.

�We had two big drivers that really characterize a risk-on session in Europe: the better-than-expected Chinese GDP and industrial production data, and a big jump in the German ZEW indicator,� said Philip Shaw, chief economist at Investec Securities.

�We already had a good start when the European markets opened and that sentiment was reinforced [by the German data],� he said.

Chinese gross domestic product expanded by 8.9% in the fourth quarter of 2011 from a year earlier, a rate that exceeded consensus expectations for 8.7% growth. Full-year growth slowed to 9.2% in 2011, down from 10.4% in 2010.

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The data are �very much in line with our view that China is seeing a steady slowdown rather than a �hard landing,� � said Brian Jackson of RBC Capital Markets in a note. �We expect that growth will moderate further in 2012, but also that this slowdown will remain relatively steady.�

In Germany, the ZEW indicator of economic sentiment leapt 32.2 points in January to reach minus-21.6 points, marking its highest level since July 2011. The indicator was at minus-53.8 points in December.

January�s increase suggests that German economic activity is likely to stabilize over the next six months rather than deteriorate.

Investors also received good news from Spain, which held its first debt auction since Standard & Poor�s downgraded its credit rating late last week. Borrowing costs fell, with the average yield on 12-month bills down to 2.049%, compared to 4.05% at a similar auction on Dec. 13.

In Europe, Afren PLC UK:AFR �was the top gainer in the Stoxx 600 on Tuesday. Its shares rallied 13.5% in London after the oil and gas producer announced a new oil discovery off the coast of Nigeria.

Shares of Swedish hygiene-products firm SCA AB SE:SCAB �gained 9.8% after the company agreed to sell its packaging operations � excluding two kraft-liner mills in Sweden � to DS Smith PLC UK:SMDS �for 1.7 billion euros ($2.2 billion). Shares of DS Smith also rose, up 3.2% in London.

In France, the CAC-40 index FR:PX1 �gained 1.4% to 3,269.99, as Schneider Electric SA�FR:SU �rallied 5%.

Shares of Renault SA FR:RNO �rose 2.6% after the French car maker said that strong demand outside Europe helped drive a 3.6% increase in worldwide sales for 2011, to 2.72 million vehicles.

In Germany, the DAX 30 index DX:DAX �rallied 1.8% to 6,332.93, with luxury-car maker Daimler AG DE:DAI �trading up 3.8% and rival BMW AG DE:BMW �adding 3.5%.

The U.K.�s FTSE 100 index UK:UKX �gained 0.7% to 5,693.95, buoyed by a 1.8% rise for Royal Bank of Scotland Group PLC RBS �UK:RBS . The company said it will sell its aircraft-leasing unit for $7.3 billion to a consortium of Sumitomo Mitsui Financial Group.

The biggest decliner in the FTSE was Essar Energy PLC UK:ESSR , shares of which slumped 26.3%. The India-focused energy firm said India�s Supreme Court ruled that subsidiary Essar Oil can no longer pay sales tax to the government in deferred installments. Essar said it has benefited from $1.24 billion in deferred sales taxes, adding that it will provide more information after studying the court�s judgment.

Also in London, shares of Burberry Group PLC UK:BRBY �erased losses to end up 0.1%. The luxury-goods group reported a 21% rise in third-quarter underlying revenue, though it noted it was �staying mindful of the challenging macro environment.�