European Shares Climb as Chinese Stimulus Boosts Luxury and Mining Stocks

European shares surged on Tuesday, driven by China's comprehensive stimulus package, which boosted luxury company and mining stocks. The pan-European STOXX 600 index saw a significant rise, with notable gains in France and the UK. Investors are optimistic that China's measures, including cutting bank reserves and mortgage rates, will power consumer spending.

European shares traded on a positive note Tuesday, as China's sweeping stimulus measures boosted stocks of luxury companies and miners.

The pan-European STOXX 600 index gained 0.9% to 520.88 points by 0810 GMT. The standout regional performer, with a 1.5% jump, was France, home to numerous luxury brands. China's top financial regulators unveiled their biggest stimulus since the pandemic, including a 50-basis-point cut in bank reserves and reduced mortgage rates.

Luxury companies, heavily reliant on Chinese consumer spending, provided the biggest boost to the index. Brands like LVMH, Hermes, Kering, Dior, and Burberry saw gains between 4% and 5%.

"The Chinese consumer is by far the biggest market for European luxury sales. Investors are connecting the dots and taking a leap of faith that this Chinese monetary stimulus will translate into increased spending power for Chinese consumers," said Ben Laidler, head of equity strategy at Bradesco BBI. Basic resources led sectoral gains, jumping 4.5%, and were set for their best day in nearly two years as copper prices hit a two-month high, supported by China's measures and improving regional demand.

Britain's FTSE gained 0.6%, spurred by rising metal miner stocks on China's stimulus plans. Another driver for investor sentiment is the potential for further rate cuts by the U.S. Federal Reserve. Markets are currently split on whether the U.S. central bank will opt for another 50 basis point cut or a 25 basis point cut in November, according to the CME Fedwatch tool.

Laidler noted that a more aggressive stance by the Fed is creating room for other central banks, like the European Central Bank, to also accelerate their rate-cutting cycle. "The stars are sort of realigning for Europe. The Fed keeping the door open for another big rate cut is a positive tailwind for Europe," he said.

Markets are also keeping an eye on comments from ECB board member Elizabeth McCaul, who is set to speak later in the day. Data showed German business morale fell more than expected in September. Nonetheless, Germany, home to many luxury carmakers, saw its benchmark index tick up 0.8%.

Among individual stock moves, UK engineering firm Smiths Group lost 8% after its annual profit missed estimates.

(With inputs from agencies.)