February 28, 2017 / 10:21 AM / 3 years ago

Banks, builders boost European shares as Trump-trade back on

MILAN (Reuters) - European shares climbed to 15-month highs on Wednesday, with banks and construction stocks leading the rally on renewed optimism over a huge economic stimulus in the United States.

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, February 28, 2017. REUTERS/Staff/Remote

U.S. President Donald Trump pledged $1 trillion of infrastructure spending in a speech to Congress on Tuesday, while policymakers stoked speculation of a rate hike in the world’s largest economy this month.

Banks .SX7P, which benefit from higher interest rates and have been among the biggest beneficiaries of the global stock market rally that followed Trump’s election last year, rose 3 percent, making them the biggest sectoral gainer in Europe.

The pan-European STOXX 600 index rose 1.5 percent to its highest since December 2015, scoring its biggest one-day gain since the U.S. presidential vote in November, while Britain's FTSE .FTSE ended at its highest level on record.

“Animal spirits have taken over ... today’s boost is all down to the president’s speech to Congress last night,” said Neil Wilson, senior market analyst at ETX Capital in London.

Also driving European markets were PMI surveys showing euro zone factory activity rose to the fastest rate in nearly six years, as well as developments in the French presidential campaign.

France's CAC .FCHI hit a 15 month high on Wednesday, while Germany's DAX surged to a 22-month high, both gaining around 2 percent. In spite of widespread euphoria, some fund managers expressed doubts about how long the rally would continue.

“We are bullish on equities in 2017, but we think that equities have run ahead of themselves in the short-term,” fund managers at Finnish private bank Evli said in a weekly note, cutting their equities exposure to neutral. They said, however, they would buy on any weakness.

Irish building materials firm CRH (CRH.I) gained 4.5 percent after the U.S.’s biggest producer of asphalt for highway construction, and third biggest supplier of ready-mixed concrete and construction aggregates posted strong earnings growth.

The firm was well positioned to benefit from increased infrastructure spending in the United States in the medium term, CEO Albert Manifold said. Shares in CRH jumped 8.1 percent on the day of Trump’s election.

Gains in CRH helped Europe’s construction index .SXOP rise 2.1 percent to its highest since August 2007.

Defence stocks remained in demand following Trump’s call this week for a “historic” increase in military spending, something a U.S. budget official quantified as a $54 billion boost.

Europe’s defence sector index .SXPARO climbed to a 19-month high on Wednesday, with Rheinmetall (RHMG.DE) among the top gainers, up 5.1 percent, after the German military technology group reported better than expected results.

Europe’s mining index .SXPP was up 2.9 percent as copper prices rose after manufacturing data from top consumer China showed potential for strong demand, reinforcing worries about shortages due to supply disruptions.

Top STOXX loser was Covestro (1COV.DE). The stock fell 6.7 percent after pharmaceuticals giant Bayer (BAYGn.DE) sold a 1.5 billion euros stake in its plastics subsidiary to help raise cash for its takeover of seeds maker Monsanto MON.N.

Reporting by Danilo Masoni; Additional reporting by Helen Reid; Editing by Mark Potter

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