Strong German retail sales keep European shares near 7-year highs

European shares rose close to seven-year highs on Tuesday as better-than-expected German retail sales further buoyed investors days before the European Central Bank kicks off a trillion-euro bond-buying programme.

The gains follow a rise in Asia and another record day on the Wall Street.

Euro zone government bond yields were slightly higher but remained near record lows as investors anticipated the ECB’s purchases. The central bank will finalise the details of its scheme at its meeting on Thursday and may start buying immediately after that.

German retail sales rose 2.9 per cent month-on-month and 5.3 per cent year-on-year in January, more than economists had forecast, helping lift Germany’s DAX index 0.4 per cent.

The pan-European FTSEurofirst 300 index was up 0.1 per cent at 1,562.36 points, just off Monday’s seven-year high. The euro was firmer at $1.1190.

“German retail sales got off to a very strong start in the new year on the back of (lower) energy prices and no doubt due to the (hike in) minimum wage,’’ said Norbert Wuthe, senior analyst at Bayerische Landesbank.

Merger speculation in the Portuguese banking sector also supported the European market. Shares in Banco BPI and Banco Comercial Portugues were each up 8 per cent.

The dollar pulled back from an 11-year high against a basket of major currencies, coming under pressure against the yen after Etsuro Honda, an economic adviser to Prime Minister Shinzo Abe, told the Wall Street Journal that dollar/yen may be at the "upper limit of comfort zone".

The dollar index dipped 0.1 percent to 95.363, having risen as high as 95.516 in Asian trading.

“Honda’s comments reflect the latest view of the government and come ahead of a proposed visit by Abe to the United States in April,’’ said Yujiro Goto, currency strategist at Nomura.

“They might not want the yen to weaken too much ahead of the visit. So, in the short-term the yen’s weakness could slow, but over the medium term it will still weaken.’’

Bank of Japan QE programme

Some countries, especially in the G7, had complained about sharp yen weakness in early 2013, just as Abe came to power and the Bank of Japan was about to embark on a huge quantitative easing programme to get inflation back to 2 per cent.

The Australian dollar rallied against its U.S. counterpart after the RBA opted to leave its policy rate unchanged at record low of 2.25 per cent, surprising some who had looked for another cut after a similar move in February.

The Aussie was 0.7 per cent higher at $0.781, bouncing from $0.7751 before the decision.

Brent crude oil prices rose, while spot gold recovered as the dollar slipped, trading 0.2 per cent higher at $1,209.60 an ounce.

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