LONDON: European stocks posted their biggest weekly gain in a month as the US unemployment rate dropped to the lowest level since January 2009 and stress tests bolstered confidence in the Spanish banking system.

Banco Espirito Santo, Portugal’s largest publicly traded bank by market value, jumped the most in more than three years. EasyJet surged 6.7 per cent in London trading as Europe’s second-biggest discount airline said full-year earnings topped its forecasts. Bayerische Motoren Werke and Daimler led a rally in automakers.

The Stoxx Europe 600 Index rose 2.1 per cent to 274.11 this week, the largest increase since the period ended Sept.7. The benchmark measure has advanced 12 per cent in 2012 as European Central Bank policy makers approved a plan to buy the bonds of the most-indebted euro-area members and the Federal Reserve unveiled a third round of stimulus measures.

“Equities are going up, house prices are going up and now unemployment is going down,” said Jacob de Tusch-Lec, a London-based money manager who helps oversee about $20 billion at Artemis Investment Management.

“You have all these three things happening at the same time and that is a very potent picture. The wealth effect is alive.”

A report on Sept.25 showed US home prices climbed more than forecast in July. The S&P/Case-Shiller index of property values in 20 cities increased 1.2 per cent from a year earlier, the biggest 12-month advance since August 2010.

Benchmark Indexes

National benchmark indexes advanced in all 18 western European markets, except Iceland. Germany’s DAX index added 2.5 per cent, the UK’s FTSE 100 gained 2.3 per cent and France’s CAC 40 increased 3.1 per cent. Greece’s ASE Index jumped 12 per cent, the most in almost four months.

Government data showed US employers added 114,000 workers to payrolls in September as the unemployment rate unexpectedly declined to 7.8, the lowest level since President Barack Obama took office in January 2009. The gain in payrolls was close to the 115,000 median estimate in a Bloomberg survey of 89 economists. The jobless rate dropped from 8.1 per cent and hourly earnings climbed more than forecast.