European stocks step higher, with bank gains providing a lift

European stocks advanced Thursday, with banks stocks marching higher after the U.S. Federal Reserve indicated it will continue to raise borrowing costs.

The Stoxx Europe 600 index

SXXP, +0.19%

 was up by 0.2% at 382.77, led by financial shares. But utility stocks lagged behind. On Wednesday, the benchmark closed fractionally lower as investors marked time before the highly anticipated Fed policy announcement.

After European trade closed Wednesday, the Fed said it will begin to shrink its huge $4.5 trillion balance sheet in October. The U.S. central bank also signaled plans for one more increase in interest rates before the end of 2017, which should lift borrowing costs for auto loans, mortgages and business loans. Fed policy makers also hinted at another three rate hikes in 2018.

The prospect of higher interest rates bolstered bank stocks on Wall Street and in Europe, where the Stoxx Europe 600 Bank Index

FX7, +1.56%

 charged up 1.7%, on track for a two-week high.

In that index, Deutsche Bank AG

DBK, +3.65%

DB, -1.09%

 popped up 3.8%, Societe Generale SA

GLE, +2.47%

  picked up 2.4%, HSBC Holdings PLC

HSBA, +0.57%

HSBC, -0.51%

 rose 1.1%, and Banco Santander SA

SAN, +1.60%

 moved up 1.9%.

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“Before the Fed announced its decision, there were high expectations that monetary policy makers would drag interest rate expectations lower for 2017,” said Hussein Sayed, chief market strategist at FXTM.

“Instead, the U.S. central bank decided to look past low inflation and said the harm of the hurricanes would have no lasting economic impact,” he said in a note, referring to damage from recent Hurricanes Harvey and Irma.

Sayed said markets have higher expectations for an interest rate hike in December, with investors now seeing a 70% chance of a hike, up from 50% before the Fed decision.

Stock movers: Elsewhere in the banking group, shares of Commerzbank AG

CBK, +4.64%

rallied 5.1%, extending gains Wednesday following a Reuters report that Italy’s UniCredit SpA

UCG, +2.40%

is interested in merging with the state-backed lender. But the German government favors Commerzbank tying up with France’s BNP Paribas SA

BNP, +1.56%

 , Reuters reported Thursday. BNP shares bulked up 2%.


CRH, +3.01%

CRH, -0.25%

 shares moved up by 3%. The Irish building materials supplier plans to buy Ash Grove Cement Co.

ASHG, -1.38%

  in a deal valuing the U.S. cement provider at $3.5 billion, the companies said.

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Capita PLC shares

CPI, -10.40%

  plunged 12% after the outsourcing and professional services company posted a 26% fall in pretax profit for the first half of the year. It did say that trading was broadly in line with expectations.

Ryanair Holdings PLC

RY4C, -0.33%

 fell 2.9%, after a group of the air carrier’s pilots on Wednesday reportedly rejected a cash bonus to work extra days after Ryanair’s cancellation of more than 2,000 flights.

Indexes: Germany’s DAX 30 index

DAX, +0.31%

 rose 0.4% to 12,613.26, and France’s CAC 40 index

PX1, +0.52%

 picked up 0.6% to 5,271.21.

The U.K.’s FTSE 100 index

UKX, -0.02%

 added 0.1% to reach 7,282.93. Spain’s IBEX 35

IBEX, +0.21%

 advanced 0.3% to 10,326, after closing 1.2% lower on Wednesday as Spanish police arrested 13 Catalan officials in a battle over a regional independence referendum.

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The euro

EURUSD, +0.1513%

 bought $1.1918, up from $1.1895 late Wednesday in New York. The dollar had earlier pushed higher against major rivals after the Fed’s plans to wind down its bond-buying program.

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