By Nikhil Sharma
(Reuters) -German shares led a broad rally in European stocks on Friday, after a report of a historic deal to raise state borrowing in the region’s largest economy.
The pan-continental STOXX 600 climbed 0.8% as of 1200 GMT, with banks and defence stocks among the top gainers, jumping 1.9% and 2.9% respectively. Germany’s benchmark DAX rose 1.9%, erasing its losses for the week.
Conservative Chancellor-in-waiting Friedrich Merz reached an agreement with the Greens on Friday on a massive increase in state borrowing ahead of a parliamentary vote next week, a source close to the negotiations told Reuters. A debt deal compromise was now being examined by finance ministry officials, parliamentary sources said.
“I think most of the market thought it would go through,” said Chris Turner, global head of markets at ING in London. “If we see confirmation today, rather than Tuesday, that it’s gone through, then we’re preempting some of the gains from next week.”
The news spurred investors’ appetite for risk towards the end of a dour week.
The STOXX 600 index was still headed for its biggest weekly fall this year as U.S. President Donald Trump’s flip-flops on tariffs sparked slowdown fears and roiled global markets.
The benchmark index had ended lower on Thursday, after Trump threatened to slap a 200% tariff on wine and other alcohol from the European Union in response to the bloc’s levies on U.S. whiskey.
“The ongoing uncertainty about tariffs… is raising questions about the outlook for growth and that’s having a particular impact on risky assets generally,” said Richard Flax, chief investment officer at Moneyfarm.
Some investors remained optimistic despite the trade war gloom, particularly because of potential progress towards a ceasefire in Ukraine and Germany’s plans to approve a 500 billion euro fund to revive growth and ramp up military spending.
Technology and basic resources gained 1.5% and 2% on Friday, respectively.
The media index, on the other hand, fell 0.9%, dragged down by a 7.6% drop in Universal Music Group (UMG) after Bill Ackman’s Pershing Square cut its stake in the company.
Kering slumped 10.4% after its Italian luxury brand Gucci appointed Georgian designer Demna as its artistic director.
On the economic front, German inflation unexpectedly fell in February, building a case for further policy easing by the European Central Bank.
Investors also closely monitored Portugal after President Marcelo Rebelo de Sousa on Thursday called to hold an early parliamentary election, two days after the centre-right minority government lost a parliamentary confidence vote.
(Reporting by Nikhil Sharma and Medha Singh; additional reporting by Samuel Indyk; Editing by Sonia Cheema, Shinjini Ganguli and Alex Richardson)
