By Sara Sjolin, MarketWatch
LONDON (MarketWatch) — European stocks rose Wednesday, as investors reacted to improvement in German business confidence, but came off session highs as a setback in U.S. budget talks pressured Wall Street.
Investors also took comfort from an upgrade late Tuesday in Greece’s credit rating.
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP +0.46% rose 0.4% to close at 281.63, a high for 2012.
Upgrade and Greece’s privatization
A debt upgrade by S&P could help boost confidence in Greece’s privatization program as its exit from the euro appears less likely. But political risks remain. (Photo: Getty Images.)
“Everybody is looking at the market and sees that it is pretty strong. There is some technical buying and this is a good market to show some new stocks in portfolios to clients,” said Koen de Leus, strategist at KBC Securities.
“Hope is high that [U.S. policy makers] will find a solution to the fiscal cliff, but hope is not a good strategy,” he said.
”The ISM index is pretty weak, but stocks are still rallying,” de Leus said. “It must mean that investors think U.S. growth will accelerate in coming months and if this is not the case, we are in for some rough months in the coming year.”
Heavyweight banking shares drove gains for the index, with HSBC Holdings PLC /zigman2/quotes/203901799/delayed UK:HSBA +0.01% /zigman2/quotes/202687335/delayed HK:5 0.00% moving up 2% in London, Banco Santander SA /zigman2/quotes/205677933/delayed ES:SAN -0.95% /zigman2/quotes/202859081/composite SAN -0.26% rising 0.9% in Madrid and BNP Paribas SA /zigman2/quotes/206351084/delayed FR:BNP +0.21% gaining 1.6% in Paris.
Credit Suisse lifted the European banking sector to benchmark from small underweight, saying the lower cost of capital should make it easier to reach required profitability levels. The analysts also highlighted that the sector should benefit from “a likely upturn in the economic cycle.”
Also in the sector, shares of UBS AG /zigman2/quotes/206172872/composite UBS +1.44% slipped 0.3%. The bank agreed to pay $1.5 billion in settling accusations of manipulating the London interbank offered rate. See UBS's 'Captain Caos' and 'Three Muscateers': Libor rigging exposed .
Positive signs from Greece, Germany and U.S.
Meanwhile, Greek shares rallied, with the Athens General Index /zigman2/quotes/210597948/delayed GR:GD -0.05% surging 4.8% to 878.41.
Serving as the catalyst, Standard & Poor’s Ratings Services upgraded Greece’s credit rating Tuesday from selective default to B minus, citing the completion last week of its distressed debt buyback. See: Anti-Grexit bet nets hedge fund $500 million profit .
Prices on the country’s government bonds rallied to their highest level since a debt restructuring in March. See: Greece's bond prices reach post-restructuring high
In another development, the European Central Bank decided to again accept Greek government bonds at its monetary-policy operations. See: ECB reinstates Greek bonds as collateral