European stocks close higher on US, German leads

European stocks closed higher Monday, helped by a strong US showing and a positive German business confidence report but Spain fell on concerns over its debt after the government suffered a surprise poll setback. Dealers said Spain was already causing concern after missing its public deficit target badly last year and news of the government's election setback stirred worries further as voters rejected its tough austerity policy. They said a fractional gain in the Ifo German business confidence report suggested that Europe's powerhouse economy might be losing some momentum but it still continued ahead of the pack. US shares opened strongly after Federal Reserve chairman Ben Bernanke said a still-weak US job market meant the central bank would likely keep its easy money policy, a stance which undercut the dollar. In London, the benchmark FTSE 100 index of top companies closed up 0.82 percent at 5,902.70 points. In Frankfurt, the DAX 30 gained 1.20 percent at 7,079.23 points and in Paris the CAC 40 rose 0.74 percent to 3,501.98 points. Madrid's Ibex 35 index lost 0.69 percent but was off early lows posted after Spanish Prime Minister Mariano Rajoy's right-leaning Popular Party surprisingly failed to win elections in the southern region of Andalusia. In Milan, the market was up 0.81 percent as investors continued to favour Italy over Spain. David Jones, chief market strategist for IG Index in London, noted reports that US hedge funds "are buying shares at the fastest rate in nearly two years," suggesting that they were having to reverse a previous negative stance. "The more cynical are seeing this as a desperate attempt ... to play catch up with the rally and could signal the risk of a short-term top at the very least but that remains to be seen," he said.  In New York, the blue-chip Dow Jones Industrial Average was up 1.03 percent at around 1600 GMT while the tech-rich Nasdaq Composite added 1.25 percent, building on early gains. Dealers said the prospect of continued very low US interest rates gave stocks a boost, with investors taking Bernanke at his word. "We cannot yet be sure that the recent pace of improvement in the labor market will be sustained," Bernanke said in a speech. "Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies." In foreign exchange trade, the European single currency came off its lows to trade higher at $1.3325, up from $1.3268 in New York late Friday. There was some tension on the bond markets driven by concerns over Spain and this kept shares in check early in the day but the firmer start on Wall Street then encouraged Europe to press ahead. Research director Kathleen Brooks at trading site Forex.com said that developments in Spain were a reminder that the eurozone debt crisis has not gone away. "After signs of stabilisation in this crisis, we are now back to uncertainty," she told AFP. "The markets are likely to remain jittery this week until we hear how the eurozone's firewall will be increased, if the increase will be permanent. "However, what the market really wants to hear is how committed all of the eurozone countries are to boosting the firewall to stop contagion spreading to Spain and Italy." Asian markets were narrowly mixed on Monday, with Tokyo virtually unchanged.