European stocks log best day in more than a month, as bank shares rally

European stocks closed higher Tuesday, as gains for UBS Group AG and others helped the market to enjoy its best daily climb since late June.

Equities held to higher ground after preliminary manufacturing activity data for the eurozone in July came in above expectations.

How markets are moving

The Stoxx Europe 600 index SXXP, +0.86%  added 0.9% to reach 388.18, topped by the basic materials and financial groups, representing its best one-day gain since June 22 and its highest finish since June 15, according to WSJ Market Data Group. On Monday, the pan-European index fell 0.2%, to log a third straight loss.

Germany’s DAX 30 index DAX, +1.12%  rose 1.1% to 12,689.39. France’s CAC 40 PX1, +1.04%  advanced by 1% to 5,434.19, and Italy’s FTSE MIB I945, +1.25%  charged up by 1.3% to 21,874.69.

Spain’s IBEX 35 IBEX, +0.48%  gained 0.5% at 9,820.10, and the U.K.’s FTSE 100 index UKX, +0.70% finished up 0.7% at 7,709.05, representing a roughly six-week peak for the gauge.

The euro EURUSD, -0.1539%  traded at $1.1690, barely moving from $1.1694 late Monday in New York.

What’s driving markets

Broad gains for lenders pulled the Stoxx Europe 600 Banks Index FX7, +2.16%  up by 2.2%.

Shares of constituent UBS climbed more than 4%, marking its largest advance since in weeks. In its second-quarter earnings report, the Swiss lender’s profit topped expectations, boosted by the performance of its investment-bank businesses.

A promise of new stimulus out of China was being assessed by investors. China’s State Council outlined measures aimed at bolstering domestic consumption, such as corporate tax cuts and support for small businesses. Bond yields rose in China on the news, a day after U.S. Treasurys and other sovereign bonds gained on reports that the Bank of Japan may discuss tweaking its yield curve control policy. Rising bond yields can provide a boost to lenders.

European stocks held on to gains after the first reading of manufacturing data in the eurozone for July surpassed expectations. The data arrived before Thursday’s meeting of European Central Bank policy makers.

What are strategists saying?

“Surging government bond yields (U.S., Japan), supported by [Federal Reserve] monetary policy tightening and BOJ tweaking are boosting Banks & Financials, while expectations of an upcoming meeting between U.S. President Trump and European Commission President Juncker is smoothing some of the trade war concerns,” said analysts at Accendo Markets.

“That said, China and its currency remains under pressure, forcing Beijing to intervene yesterday,” they added in a note.

Stocks in focus

UBS UBS, +3.22%  rose 4.3% as the Swiss bank said second-quarter net profit increased by 9.4% to 1.28 billion Swiss francs ($1.29 billion), and analysts had expected net profit of CHF1.02 billion.

Peugeot SA shares UG, +14.88%  soared by 15% as the French auto maker’s first-half profit came in at 1.48 billion euros ($1.73 billion), above expectations of €1.15 billion.

Randstad NV RAND, +3.92%  moved up 3.9% after the Dutch recruitment company said adjusted net profit—excluding amortization, impairments and one-off costs—rose 23% to €223 million in the second quarter.

Economic data

In July, the manufacturing purchasing managers index beat expectations, printing 55.1, IHS Markit reported Tuesday. That compares with the 54.7 expectation from a FactSet consensus survey. The services PMI of 54.4, however, fell short of the 55.0 estimate.

French and German manufacturing PMIs for July also exceeded expectations. On the services side, German activity was in line with estimates, but the French services PMI fell slightly short.

Elsewhere, confidence in French manufacturing dropped in July, with business leaders less optimistic about activity in the sector for the coming months than they had been earlier this year, French statistics agency Insee said Tuesday.

The sentiment reading in the manufacturing sector declined to 108 in July from 109 in June, which Insee was cut from a previous reading of 110.