* DAX sets new record high
* FTSEurofirst up 0.4 pct, Euro STOXX 50 rises 0.5 pct
* RWE buoyed by broker upgrade
* Sonovo surges after raising guidance
By Sudip Kar-Gupta
LONDON, Nov 18 (Reuters) - Germany’s DAX equity market hit a record high on Monday as European shares resumed their rally on the back of an improving outlook for the region’s economy.
The pan-European FTSEurofirst 300 index rose 0.4 percent to 1,302.68 points in mid-session trading, close to a 5-year high of 1,316.42 points reached earlier this month.
The euro zone’s blue-chip Euro STOXX 50 index rose 0.5 percent to 3,071.14 points while the DAX was up by 0.5 percent at 9,212.92 points, having earlier rallied to an all-time high of 9,220.70 points.
Investors and traders said that even if European equity markets were prone to the odd short-term dip, the longer-term outlook for 2014 remained positive, given signs of a gradual improvement in the region’s economy from the effects of the euro zone’s sovereign debt crisis of the last few years.
On Monday, European Union data showed that the euro zone’s trade surplus grew more than expected in September, while the Bundesbank said Germany would consolidate its economic recovery in coming months.
The European Central Bank’s decision earlier this month to cut interest rates to a record low of 0.25 percent has provided encouragement for investors, signalling the bank’s intent to support the economic recovery.
“Stable to slightly higher equity markets are expected in the near term,” said Eric Bendahan, European equity fund manager at Swiss bank and fund management group SYZ.
“An improving economy was the missing piece in the puzzle but leading indicators in the developed world and in Europe are now supportive, confirming the return to a growth environment with growth being more balanced between northern and southern Europe,” he added.
Richard Edwards, head of trading and research firm HED Capital, favoured the DAX over rival markets in France, Spain and Italy, arguing that the German economy appeared in better shape with its exporters well-placed to benefit from any weakness in the euro.
Edwards backed buying the DAX on days when it fell while also selling the French, Spanish and Italian equity markets when they rose in order to make the most gains.
“We’ve favoured Germany for a long time over the rest,” he said.
German utility RWE topped the DAX leaderboard with a 7.7 percent rise, which traders attributed to Exane BNP Paribas’ upgrade on the stock to “outperform” from “neutral”.
Hearing aid company Sonova also rose 6.7 percent after raising its full-year guidance.
The FTSEurofirst 300 has risen around 15 percent since the start of 2013, while the Euro STOXX 50 has advanced by around 17 percent. The DAX has risen 21 percent.