By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch)—European equities powered ahead on Tuesday, driven by the results of a Spanish debt auction and positive global economic signals, but shares of Repsol SA tumbled on Argentina’s move to seize control of YPF SA.
Extending earlier gains, the Stoxx Europe 600 Index /zigman2/quotes/210599654/delayed XX:SXXP -1.03% surged 2% to close at 259.45. Leading the index higher, heavyweight food group Nestle SA /zigman2/quotes/210131093/delayed NSRGY +0.22% /zigman2/quotes/208115528/delayed CH:NESN +0.13% rose 1.3% as rival Danone SA /zigman2/quotes/205561941/delayed FR:BN -0.34% reported strong first-quarter revenue.
Contributing to the positive sentiment, the International Monetary Fund raised its forecast for global economic growth in 2012 and 2013, citing improved financial conditions and unwinding of the financial crisis.
The IMF warned, though, that the recovery remains fragile and that another acute crisis in Europe remains the main risk to the global economy. More on IMF raises global outlook
Wall Street also rose sharply, buoyed by Europe’s gains and data showing a surge in U.S. building permits for March, which offset lower housing starts.
Earlier in the day, the German ZEW indicator of investor sentiment showed an unexpected increase in April, the fifth straight monthly gain. The indicator rose to 23.4 from 22.3 in March, while economists had forecast a decline to 20.0.
Fear over Spain's austerity measures
As the Spanish economy dips back into its second recession in two years, concerns are mounting that austerity measures could send the local economy into a downward spiral. (Photo: Associated Press.)
“The optimism is obviously out there,” said Predrag Dukic, senior equity sales trader at CM Capital Markets in Madrid, who added that upbeat news for the largest economy in the euro zone is “always well-received.”
But even ahead of that, he said markets were headed higher, and part of that is due to bargain hunters picking up stocks in Europe that have dropped significantly in recent days.
Bond “spreads started coming down as well and before that we saw what was a significantly better-than-expected Spanish auction,” said Dukic. While borrowing costs rose on the €3.2 billion ($4.2 billion) auction of 12- and 18-month bills, demand was stronger, with bids exceeding supply 2.9 times, up from a similar March sale.
An ease in bond yield spreads for Spain and Italy also helped the banking sector rally, Dukic said.
The yield on Spain’s 10-year government bond fell 13 basis points to 5.89%, falling back after ringing alarm bells by hitting the 6% threshold Monday. The yield on Italy’s 10-year government bond fell 1 basis point to 5.48%.
Italian stocks were among the best performers in Europe, with the FTSE MIB Italy index moving up 3.7% to 14,942, as Banco Popolare SC surged more than 9% and ENI SpA /zigman2/quotes/209584888/delayed IT:ENI +0.76% rose 2.6%.
In Madrid, the IBEX-35 index /zigman2/quotes/210597995/delayed XX:IBEX -0.45% surged 2.3% to 7,373.30. Standouts included shares of Banco Santander SA /zigman2/quotes/205677933/delayed ES:SAN -0.25% and BBVA SA /zigman2/quotes/209653399/delayed ES:BBVA -0.03% /zigman2/quotes/204078760/composite BBVA +1.38% , both rising 3.7%.
However, shares of Spanish oil group Repsol SA /zigman2/quotes/202941606/delayed ES:REP +0.31% /zigman2/quotes/207440515/delayed REPYF +1.17% tumbled more than 6% in the wake of the Argentine government’s move to nationalize energy group YPF SA /zigman2/quotes/201114166/composite YPF +3.81% /zigman2/quotes/204658168/delayed AR:YPFD -1.26% . YPF is majority-owned by Repsol. Read Repsol shares dive after Argentina’s YPF move