LONDON/MILAN European shares climbed higher on Thursday, led by travel and retail stocks, as investors grew more bullish about risks to Donald Trump's stimulus plans, just before a vote in Congress on the U.S. president's healthcare bill.
The pan-European STOXX 600 index gained 0.9 percent following losses in the previous three sessions. Markets extended gains after the U.S. opened, indicating that American investors pushed Europe higher.
The U.S. vote, which could come as early as Thursday, is seen as a litmus test of Trump's ability to push through legislation, including more market sensitive plans to cut tax, boost spending and deregulate banks.
"Investors will have to wait for the outcome of today's vote for the market's next move," said Peter Rosenstreich, head of market strategy at Swissquote Bank in Geneva.
"So far, the market has hyped this event as being a test of U.S. President Trump's policy agenda, suggesting that a defeated healthcare bill would translate into barriers for the much-awaited tax reform policy and broader pro-growth agenda."
Expectations of a big economic stimulus in the world's largest economy have helped fuel a global rally in equity markets, lifting the STOXX to 15-month highs earlier this week, so any policy disappointment could precipitate losses.
Some investors said they were upbeat about prospects for European equities despite political risks and that Trump fears were overdone.
"I have the sensation that investor interest in Europe remains strong and that a part of the market remains underweight pending the outcome of the French vote," Consultinvest fund manager Enrico Vaccari said, referring to the French presidential election on April 23 and May 7.
"That suggests there is fuel left for the rally to continue."
Deutsche Bank on Thursday said it had "underweight" positions on Germany and France.
Strategists at the German bank said a victory for far-right contender Marine Le Pen in France's presidential election was the biggest risk for the French market, although opinion polls show Le Pen as likely to lose to independent centrist Emmanuel Macron.
France's blue chip CAC .FCHI index was up 0.8 percent, its best daily gains since early February, and Germany's DAX .GDAXI rose 1.2 percent.
Next (NXT.L) was the top gainer, up 8.1 percent and leading the retail sector .SXRP higher, buoyed by positive retail sales data from Britain.
The British clothing retailer reported a first drop in annual profit since 2009 and said it was "extremely cautious" about prospects for the year ahead but its battered shares rose on relief that the outlook has not deteriorated further.
Credit Suisse (CSGN.S) fell 2 percent after sources said the bank was considering a quickfire share sale rather than pursuing a separate listing for its Swiss banking division. The move could raise 3 billion Swiss francs ($3.03 billion).
Fiat (FCHA.MI) also came under selling pressure, down 0.8 percent, as investors read across from American car giant Ford (F.N) warning it expected lower quarterly earnings. Fiat makes over three quarters of its operating profit in the U.S.
(Editing by Tom Heneghan and Ed Osmond)