European stock markets rally on stimulus hopes

European stock markets rallied on Tuesday afternoon, buoyed by hopes of central bank stimulus measures, falling UK inflation and positive company results.

The FTSE 100 rose more than 2% at some points during the afternoon, but ended the day 1.7% up at 5586.3.

In Germany, the Dax index rose 1.8% to 6363.4, while in France, the Cac 40 index climbed 1.7% to 3117.9.

Spain's Ibex 35 index rose 2.7% to 6,693.9.

Traders speculated that the US Federal Reserve would decide to inject more money into the economy following its two-day policy-setting meeting, which ends on Wednesday.

With UK inflation falling to 2.8%, the Bank of England also has more flexibility to pump prime the UK economy, which is still struggling to find consistent growth.

Meanwhile, in Germany, falling consumer sentiment added to speculation that central banks would intervene to boost confidence.

The rallies came despite a rise in Spanish short-term borrowing costs and the continuing uncertainty about the final make-up of the Greek government.

On the currency markets the euro rose 0.5% against the dollar, rising to $1.264.