FRANKFURT, July 22 ― European shares closed above four-month highs yesterday, with Germany's blue-chip DAX erasing almost all its losses for the year, after EU leaders agreed on a landmark stimulus package to revive the bloc's economies from a coronavirus-induced slump.

The pan-European STOXX 600 jumped as much as 1.3 per cent before ending 0.3 per cent higher at its highest since early March, as did an index of euro zone blue-chip stocks which rose 0.5 per cent.

Oil stocks were the biggest boost, also marking their best session since early March, as crude prices surged.

The global mood also brightened on growing optimism about a Covid-19 treatment after promising early data from trials of three potential vaccines.

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European Union leaders clinched a “historic” deal in the early hours of yesterday on a €750 billion (RM3.68 trillion) recovery fund and its related €1.1 trillion budget for 2017-2021 that they hope will help repair the continent's deepest recession since World War Two.

“It will add to the foundation of the current bull market,” said Teeuwe Mevissen, senior macro strategist at Rabobank.

“It will have a long-term impact in the sense that if the European Union finds itself in a similar situation in the future, then markets will expect that governments will come to the rescue.”

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Germany's DAX gained 1 per cent finishing at five-month highs, boosted by tech major SAP SE.

A gauge of European stock market volatility sank to its lowest since February 25.

Spain and Italy, among the south European countries set to benefit from the EU deal, saw their main indexes gain 0.2 per cent and 0.5 per cent respectively.

Eyes are now on likely US aid legislation aimed at supporting its economy.

Topping the STOXX 600 index was Adevinta which soared 26 per cent after US firm Ebay Inc agreed to sell its classified ads business to the Norwegian group in a deal worth US$9.2 billion.

In earnings-driven moves, Randstad Holding jumped almost 9 per cent after the staffing company reported a smaller-than-expected drop in quarterly core earnings.

The biggest drag on the STOXX 600 was Novartis, down 1.9 per cent after the drugmaker trimmed its 2020 sales forecast as coronavirus related disruptions hit its quarterly revenue.

Europe's healthcare index was the worst sectoral performer, down 1 per cent with AstraZeneca also declining after a University of Oxford researcher flagged uncertainty about rolling out its possible Covid-19 vaccine ― licensed to AstraZeneca, by the end of the year.

London's FTSE 100 ended flat with shares of mining giant BHP also sliding 2.6 per cent after it warned of risk to demand. ― Reuters