Europe stocks rise after manufacturing data

An earlier version of this story gave an incorrect number for German PMI in December. The story has been corrected.

LONDON (MarketWatch) � European stocks rose Wednesday, lifted by banks and oil companies, after manufacturing data from China, Germany, the U.K. and the euro zone came in slightly better than expected.

The Stoxx 600 index XX:SXXP �closed 2% higher at 259.51, a six-month high, extending gains from Tuesday, when markets rallied after 25 European leaders agreed on a fiscal compact.

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Italian banks surged to the top of the index Wednesday, as yields on 10-year Italian government bonds IT:10YR_ITA �fell 22 basis points to 5.64%.

Banca Monte dei Paschi di Siena SpA IT:BMPS �jumped 10.2%, Banco Popolare S.C. IT:BP �rose 10.9%, Banca Popolare di Milano S.C.A.R.L IT:PMI �added 9.4% and Banca Popolare dell�Emilia Romagna S.C.A.R.L IT:BPE �advanced 7.8%, all helping lift the FTSE MIB index XX:FTSEMIB 2.8% to 16,264.55.

�When sentiment turns, there�s always a potential for a run quite quickly for banks,� said Richard Perry, chief market strategist at Central Markets.

�We generally see markets pushed higher, but the economic recovery is not all that strong,� he said. �It�s based on liquidity from the ECB.�

The British FTSE 100 index UK:UKX �added 1.9% to 5,790.72.

In France, the CAC 40 index FR:PX1 �advanced 2.1% to 3,367.46 and the German DAX 30 index DX:DAX �ended up 2.4% to 6,616.64.

European shares extended gains Wednesday, after data showed that the ISM manufacturing index climbed to 54.1% in January, up from a revised 53.1% in December, slipping slightly below expectations. Separately, U.S. nonfarm private employment rose 170,000 in January, marking the 24th consecutive month of gains, according to Automatic Data Processing Inc.

Markets were further buoyed by manufacturing data from Germany, the U.K. and the euro zone released Wednesday. The German Purchasing Managers Index rose to 51.0 in January from 48.4 in December, slightly beating consensus expectations. The euro-zone PMI rose to 48.8 in January, which was above the earlier flash estimate of 48.7, also a little above consensus. In the U.K., PMI rose to an eight-month high of 52.1 in January, up from a revised reading of 49.7 in December.

Chinese PMI data also pointed European stocks to a positive start Wednesday morning, as the number increased to 50.5 in January, up from 50.3 in December and beating expectations for a drop to 49.5. Any number above 50 indicate economic expansion.

�This shows that the Chinese growth story is still in play and the market had thought we would see a contraction,� Perry said, and added that commodities benefited from the data.

Gold, silver, copper and aluminium prices were up, lifting the mining sector to solid gains. Glencore International PLC UK:GLEN �jumped 5%, Fresnillo PLC UK:FRES �gained 4%, Xstrata PLC UK:XTA �added 4.2%, Vedanta Resources PLC UK:VED �rose 4.7% and Kazakhmys PLC UK:KAZ �was up 4.8%.

Heavyweight oil companies also added to the positive mood and Lundin Petroleum AB SE:LUPE �advanced 4.8%, A.P. Moller-Maersk A/S DK:MAERSKB �gained 4.3%, BP PLC UK:BP �rose 2.6%, Cairn Energy PLC UK:CNE �took on 3.6% and BG Group PLC UK:BG � advanced 1.4%.

Investors were further eyeing progress in debt talks in Greece, as negotiations between the private creditors and the government to write down debt are yet to be concluded. Bond holders lowered their demand for a coupon rate to 3.6% from 4.25%, which would result in an estimated loss of 70% for investors, Bloomberg News reported.

�The markets are meeting resistance levels and need key events to push them higher. A conclusion in the Greek debt talks could give markets that lift,� Perry said.

Elsewhere, ICAP PLC UK:IAP �jumped 7.7%, as investors seemed to ignore a 7% fall in revenue for the fiscal third quarter and a profit warning for the full year and instead focused on the prediction of increased activity in 2012.

Infineon Technologies AG DE:IFX �rose 5.6% after reporting first-quarter sales of 946 million euros ($1.2 billion), beating analyst estimates of �933 million.

Among decliners, shares of Roche Holding AG CH:ROG �dropped 1.5% even as the drug maker reported a rise in full-year profit for 2011. However, earnings were a little below expectations, according to Andrew C. Weiss, an analyst at Bank Vontobel. �The stock has been doing well over the past months, so it�s time to pocket some profit,� he said.