Europe close: Stocks rally as Yellen hints at rate hike by end of the year

LONDON (ShareCast) - (ShareCast News) - European stocks rallied on Friday, as remarks from Federal Reserve chairwoman Janet Yellen's in favour of raising interest rates later this year mitigated concerns about the economic outlook The benchmark Stoxx Europe 600 index closed 2.84% higher, while Germany's DAX gained 2.77 and France's CAC rose 3.07%.

The euro was broadly flat against the dollar, but gained 0.48% and 0.54% against the yen and the pound respectively.

Yellen hints at rate hike On Thursday, Yellen suggested the Fed is still planning to raise rates by the end of the year as long as inflation is stable and the economy is strong enough to support employment.

"It (Other OTC: ITGL - news) will likely be appropriate to raise the target range of the federal-funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labour market improves further and inflation moves back to our 2% objective," she said in a speech at the University of Massachussets.

Yellen's comments delivered some much-needed stability in global equity markets, although analysts warned the feel good factor could be short lived.

"Janet Yellen's hint that rates will still rise this year has actually prompted a bout of buying in stock markets, on the calculation that the Fed is more optimistic about the global economy than it hinted in its most recent meeting, and thus valuations are not as overstretched as previously thought," said Chris Beauchamp, senior market analyst at IG (LSE: IGG.L - news) .

"Such thinking might not last if the round of economic data next week - especially China numbers and US non-farm payrolls - do not match up to estimates, but overall good news is good news once again." In company news Volkswagen (Other OTC: VLKAF - news) lost 4.32% board is due to announce a replacement for chief executive Martin Winterkorn, amid reports that Porsche's CEO Matthias Mueller is the front-runner.

Meanwhile, BMW (Swiss: BMW.SW - news) recovered from sharp losses in the previous session and rose 4.24%, as German car magazine Auto Bild clarified a report it put out on Thursday, saying it had no evidence of data manipulation at the car maker.

Pharmaceutical company Sanofi (NasdaqGM: GCVRZ - news) gained 3.09% sharply following reports it's considering selling its bio-surgery and renal units.

On a day quiet in terms of economic in data in the Eurozone, investors focused on reports from across the Atlantic, where the University of Michigan Index for September was upwardly revised from 85.7 to 87.2 but remained well below August reading of 91.9.

Meanwhile, US gross domestic product expanded at an annualised pace of 3.9% in the second quarter, according to a final estimate from the Department of Commerce, up from the prior estimate of 3.1% and compared with analysts expectations for a 3.7% increase.