Europe midday: Stocks surge on Wall St rally, softer Fed tone

European shares surged in midday trade as investors responded to the Wall Street rally and hopes the US Federal Reserve would scale back the pace and size of interest rate rises earlier than planned.

The pan-European Stoxx 600 was up 2.4%, with allmajor bourses higher. Britain's FTSE 100 was up 1.86% while the pound was 0.4% firmer versus the dollar at 1.1369 - its highest level in two weeks as investors welcomed news that Finance Minister chancellor Kwasi Kwarteng plans to bring forward the publication of his debt-reduction proposals.

Kwarteng on Monday caved in to pressure and announced he would abandon plans to cut the top rate of tax but gave no indication he would bring forward the publication of his medium-term fiscal plans.

However, on Tuesday it was widely reported that the government had now once again buckled and would publish the plan later this month, having previously said they would be published at the end of November.

Neil Wilson, chief market analyst at Markets.com, said it the overnight surge on Wall Street was a "classic bear market relief rally", with yields and the dollar rolling over and equities rallying from oversold levels.

"The reason: chiefly some softer US data has people thinking the Fed might need to take a step back and pause hiking rates earlier than maybe thought. After a very sharp runup for bond yields last week as the UK’s gilt market broke, Monday saw a very abrupt correction.

In economic news, producer prices jumped in the eurozone in August, official data showed on Tuesday, as energy costs mounted.

According to Eurostat, the European Union’s statistical office, industrial producer prices rose 5.0% in August compared with July, and by 4.9% across the wider bloc. In July, prices jumped 4.0% in the eurozone and 3.7% in the EU.

Annually, prices surged 43.3% compared to August 2021 and by 43.0% in the EU. Analysts had been expecting a monthly rise of 4.9% and annual increase of 43.1% in the eurozone.

In equity news, shares in UK bakery chain Greggs gained almost 10% after reporting a rise in quarterly sales despite the deepening cost of living crisis and plummeting consumer confidence.

Hargreaves Lansdown jumped tafter an upgrade to ‘hold’ at Jefferies.

British insurer and pensions group Legal & General gained after saying it had not been exposed to recent bond market turmoil sparked by UK Finance Minister Kwasi Kwarteng’s badly received mini budget last week.

Accelleron shares were higher as investors bought the stock at a discount after the former ABB turbocharging unit’s weak market debut on Monday.

Reporting by Frank Prenesti at Sharecast.com