EUROPE MARKETS: European Stocks Set For Best Month Of 2017

By Sara Sjolin, MarketWatch Features Dow Jones Newswires

Volkswagen slides after announcing EUR2.5 billion in charges

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European stocks advanced on Friday, staying on track for their best month of the year after a string of upbeat data and a rally for the banking sector on rising expectations for tighter monetary policy.

The Stoxx Europe 600 index rose 0.1% to 386.61, but was flipping between gains and losses. For September, the pan-European index was on course for a 3.4% rise, its biggest monthly advance since December last year. For the third quarter, which also wraps up after Friday's trade, the index was up 1.9%, rebounding from a 0.5% loss in the second quarter.

"The overall recovery in the euro area is going from strength to strength at a time when people are increasingly optimistic about the global economy. Companies [earnings] also had a good second quarter and people seem optimistic about the third and beyond," said Craig Erlam, senior market analyst at Oanda.

He cautioned, however, there are still a number of things that could go wrong, including the U.K.-EU Brexit negotiations and a fragile recovery in southern Europe.

"But we finally appear to be at a point when the tailwinds are more encouraging that the headwinds are concerning and this could continue to support stocks even as the ECB withdraws it's support, which in itself is an act of confidence in the outlook," Erlam added.

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Indexes: Germany's DAX index traded 0.4% higher at 12,750.85 on Friday, heading for a 5.8% monthly gain.

France's CAC 40 index rose 0.2% and was on track for a 5.4% gain in September.

The U.K.'s FTSE 100 index climbed 0.7% to 7,370.47 in Friday's dealings, trimming its monthly loss to 0.8%.

Spain's IBEX 35 index fell 0.2% on Friday, ahead of Sunday's independence vote in Catalonia.

Read:5 things investors need to know about Catalonia's independence referendum (http://www.marketwatch.com/story/5-things-investors-need-to-know-about-catalonias-independence-referendum-2017-09-28)

Banking rally: Banks have been among the biggest advancers in September, with the Stoxx Europe 600 Banks index looking toward a 4% monthly gain. The sector has been boosted by expectations that central banks in both Europe and the U.S. will tighten policy in the coming months.

In the eurozone, European Central Bank President Mario Draghi earlier in September indicated it will unveil plans to start scaling back its aggressive easing program in October. Meanwhile, the Bank of England hinted interest rates could rise for the first time in a decade in November, while the U.S. Federal Reserve reaffirmed that a rate hike is on the cards for December.

Higher interest rates are usually good for banks as they can charge more for their loans.

Among biggest advancers in the sector, shares of Royal Bank of Scotland Group PLC (RBS.LN) is up 5.9% for the month, Commerzbank AG (CBK.XE) rose 3.8% and Banco BPM SpA (BAMI.MI) added 4.3%.

The banking index was down 0.2% on Friday.

Friday's stock movers: Among biggest movers on Friday, shares of Volkswagen AG (VOW.XE) (VOW.XE) lost 2.9% after the car maker warned that its third-quarter operating result would be hit by a charge of around EUR2.5 billion (http://www.marketwatch.com/story/volkswagen-warns-of-25-bln-in-recall-charges-2017-09-29) ($2.94 billion) connected to recalls in North America.

Volkswagen's controlling shareholder Porsche Automobil Holding SE (PAH3.XE) fell 1.4%.

Shares of Aviva PLC (AV.LN) added 1.4% after the U.K. insurer said it has agreed to sell its joint venture in Italy, (http://www.marketwatch.com/story/aviva-sells-italian-joint-venture-for-265-million-2017-09-29) Avipop Assicurazioni SpA, to Banco BPM SpA (BAMI.MI) for EUR265 million euros. Banco BPM shares were off 1.3%.

Economic news: The unemployment rate in Germany fell to a record low in September (http://www.marketwatch.com/story/german-unemployment-rate-falls-to-record-low-2017-09-29) at 5.6% as jobless claims declined more sharply than expected.

Eurozone inflation in September was stable at 1.5%, missing forecasts of a 1.6% reading.

French consumer spending (http://www.marketwatch.com/story/french-consumer-spending-unexpectedly-declines-2017-09-29) was weaker than expected over the summer, falling 0.3% in August.

Meanwhile, in the U.K. second-quarter economic growth was revised down to 1.5% from 1.7%.

(END) Dow Jones Newswires

September 29, 2017 06:50 ET (10:50 GMT)