EUROPE MARKETS: European Stocks Ring Up Best Month Of 2017

Volkswagen slides after announcing EUR2.5 billion in charges

European stocks advanced on Friday, booking the 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 0.5% to 388.16, and registering its highest monthly advance, up 3.8%, since December 2016. The index has risen for three straight weeks, and ended the quarter with a return of 2.3%, 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.

Indexes: Germany's DAX index closed 1% higher at 12,828.86 on Friday, posting a 6.4% monthly gain--its best monthly gain of the year. The gauge booked a quarterly rise of 4.1%, representing its fifth straight quarterly increase.

France's CAC 40 index rose 0.7% to 5,329.81 and marked a 4.8% gain in September, representing its best monthly gain since March. The equity indicator has risen for three straight weeks and has ended in the green for four of the past five quarters, up 4.1% in the most recent three-month period.

The U.K.'s FTSE 100 index picked up 0.7% at 7,372.76, marking its best daily gain since Sept. 1. For the week, the London index finished up 0.9%. For the month, the benchmark ended off 0.8%, but notched a 0.8% quarterly gain.

Spain's IBEX 35 index rose 0.5% on Friday to 10,382.50, ahead of Sunday's independence vote in Catalonia. For the week, the Spanish benchmark finished up 0.7%, logged a 0.8% monthly return, but is down 0.6% over the past three months, marking its second straight quarterly decline.

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 producing a 4.8% 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) were up 6.5% for the month, Commerzbank AG (CBK.XE) rose 10.3% and BNP Paribas SA (BNP.FR) added 6.8%.

The banking index ended up 0.4% on Friday.

Friday's stock movers: Among movers on Friday, shares of Volkswagen AG (VOW.XE) (VOW.XE) lost 0.5% 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.

Shares of Aviva PLC (AV.LN) added 1% 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 flat.

Bayer AG (BAYN.XE) (BAYN.XE) picked up 2.1% after the pharmaceutical and chemicals company said it sold a 6.9% stake in polymers company Covestro AG (http://www.marketwatch.com/story/bayer-cuts-covestro-stake-will-revise-outlook-2017-09-29)(1COV.XE) for 1 billion euros ($1.18 billion), and will revise its 2017 outlook.

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 reduced to 1.5% from 1.7%.

(END) Dow Jones Newswires

September 29, 2017 13:08 ET (17:08 GMT)