LONDON (MarketWatch)�European stock markets jumped in afternoon trade on Thursday, inspired by stellar gains on Wall Street where investors flocked to risky assets after policy makers indicated interest rates will remain low.
Meanwhile, peripheral euro-zone banks dropped after a heavily discounted rights issue from Portugal�s Banco Espirito Santo SA.
The Stoxx Europe 600 index XX:SXXP closed 1.2% higher at 257.36 after a choppy session that saw stocks swing between losses and gains.
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Markets surged to session highs after Wall Street opened with solid gains after remarks by New York Federal Reserve Bank President William Dudley indicated that interest rates will stay low through 2014.
The comments offset earlier losses in European equities, where disappointing jobless claims data from the U.S. spurred investors to sell risky assets. Initial claims jumped by 13,000 last week to 380,000, while first-time claims from two weeks ago were revised up to 367,000 from 357,000.
In Europe, banks helped drag indexes out of red territory.
Barclays PLC UK:BARC �BCS �rallied 5.4% in London, Lloyds Banking Group PLC UK:LLOY �LYG �jumped 4.3%, and HSBC Holdings PLC UK:HSBA �HBC �added 1.3%.
The FTSE 100 index UK:UKX surged 1.3% to close at 5,710.46, further buoyed by miners posting strong gains alongside rising metals prices. Heavyweight Rio Tinto PLC UK:RIO �RIO �rose 4.5%, BHP Billiton PLC UK:BLT �BHP �added 2.8% and Xstrata PLC UK:XTA �gained 2.5%.
The U.K. index spent most of the session struggling to push above Wednesday�s closing price as Royal Dutch Shell PLC UK:RDSA �UK:RDSB �RDS.A �RDS.B came under pressure.
The oil group was off as much as 5.2% during the day following observations of a light oil sheen in a central portion of the Gulf of Mexico, where the firm has operations. Shell said later in the day that the sheen didn�t originate from the firm�s platform and shares closed 0.5% lower. Shell drops on Gulf of Mexico oil slick report
Standing out in the positive European market, Portugal�s PSI 20 index PT:PSI20 shed 1% to 5,257.21, with shares of Banco Espirito Santo PT:BES �tumbling 10.5% to around 1 euro. The bank said late Wednesday that it will seek to raise up to 1 billion euros ($1.3 billion) in a rights issue aimed at lifting capital.
The bank is issuing up to 2.56 billion new shares at �0.395 each. That�s a 66% discount on the prior day�s close of �1.17.
�The capital increase has not been received well by the southern European markets. Investors think it can have a spillover effect and markets are saying the next ones to apply the exact same measure are the Spaniards and the Italians,� said Predrag Dukic, senior equity sales trader at CM Capital Markets in Madrid.
Spain�s IBEX 35 index XX:IBEX �dropped 0.8% to 7,520.00, adding to recent steep losses following concerns about the country�s economic situation and efforts to bring down its budget deficit.
�Markets are saying, �We don�t give much credibility because you have not been able to meet the deficit target before and you won't be able to grow because of the cuts�. It�s a vicious circle,� Dukic said. �Investors question Spain�s sustainability and the Spanish sovereign state and that depresses markets.�
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