March 14, 2012 / 4:37 PM / 5 years ago

Fed, Italian auction fuel European stocks rally

PARIS, March 14 (Reuters) - European stocks ended higher on Wednesday, with benchmarks closing at levels not seen since August after a drop in Italy's borrowing costs at an auction and a brighter forecast from the U.S. Federal Reserve fuelled the market's brisk week-long rally.

Sharp losses in Portuguese stocks and an underperforming Madrid bourse, however, showed investor wariness about the two countries' ability to deal with their debt piles, which could yet threaten the European market gains made since mid-December.

The FTSEurofirst 300 index of top European shares unofficially ended 0.3 percent higher at 1,099.09 points, its highest closing level in nearly eight months.

Banks paced the gains, with Natixis up 5.3 percent and Credit Suisse up 5 percent.

"The ECB's two LTROs have had an extremely positive impact on sentiment. The risk of a bank going bankrupt is virtually gone," said Philippe Ithurbide, head of research and strategy at Amundi, which has 659 billion euros ($859 billion) under management.

"Prices continue to recover from capitulation levels seen last year, but euro zone equities are still 20 percent cheaper than U.S. peers. That gives you a pretty good idea of where to invest."

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