European stocks set to rise 2 percent by year-end, helped by ECB

By Blaise Robinson

PARIS (Reuters) - European shares are poised to add another 2 percent to this year's gains, supported by the European Central Bank's ultra-loose monetary policy and as a falling euro boosts company earnings, a Reuters poll found.

Italy's benchmark index FTSE MIB (FTMIB) - already up 9 percent so far in 2014 and expected to be the biggest beneficiary of the ECB's stimulus measures - is set to gain an extra 6 percent before year-end.

Europe's rally looks likely to continue through 2015, although it may be held back in the first part of the year as the U.S. Federal Reserve is expected to raise interest rates for the first time since 2006. [ECILT/US]

The survey of around 50 fund managers and strategists conducted in the past week predicted the pan-European STOXX Europe 600 (STOXX) index would climb 2 percent from current levels to 350 points by the end of 2014.

The euro zone's blue-chip Euro STOXX 50 (STOXX50E) index, home of bellwethers such as brewer Anheuser-Busch InBev (BR:ABI), Banco Santander (MC:SAN) and Siemens (DE:SIEGn), is expected to rise over 3 percent by year-end.

Indexes were set to inch higher in the first half of 2015, with the STOXX 600 hitting 360 points by mid-2015 and the Euro STOXX 50 reaching 3,400 points, before gaining steam again in the second half of 2015, with the STOXX 600 reaching 373 by the end of the year and the Euro STOXX 50 3,550 points.

"Monetary policy is still very accommodative, with the central banks keeping interest rates at extremely low levels, which makes stocks very attractive relative to bonds," said Eric Turjeman, co-head of global equity at Amundi Asset Management, which has 821 billion euros ($1.1 trillion) under management.

While 10-year German Bund yields have tumbled to 1 percent, investors have been reallocating assets into European equities, which offer on average a dividend yield of 3.3 percent, a chunky 230 basis points above Bund yields.

European stocks are also set to benefit from the recent sharp drop in the euro, "which should translate into corporate earnings throughout 2015," Turjeman said.

After proving a major headwind for exporters in the first part of 2014, the euro slumped to a 22-month low against the dollar on Thursday which should boost corporate earnings in the coming quarters.

Earlier this month, the ECB unveiled further stimulus measures including purchases of asset-backed debt, adding to previously-announced cheap loans to banks.

The bank's measures, which may be paving the way for bolder action in the coming months, could further push down the euro and support risky assets such as equities.

However, fund managers and strategists warned that while the ECB remains very accommodative, the prospect of an interest rate hike by the U.S. Federal Reserve in the first half of 2015 could create turbulence in European stock markets.

"This will be a very delicate turning point for stock markets, even though it won't change the bullish medium-term trend," Xavier Lespinas, head of equities at Swiss Life Banque Privée, said.

The latest Reuters poll sees the CAC (FCHI) ending 2014 at 4,600 points, up 4 percent from Wednesday's close, with the IBEX (IBEX) at 11,250 points, also up 4 percent from Wednesday.

Germany's DAX (GDAXI) - which has underperformed its European peers so far this year, hurt in part by worries over the country's exposure to the Ukrainian crisis and sanctions against Russia - is forecast to end 2014 at 10,000 points, up 3.5 percent from Wednesday's close.

(For other stories from the poll see )

(Polling by Blaise Robinson in Paris, Sudip Kar-Gupta in London and Elisa Anzolin in Milan)