European stocks rally on Fed movement, Syria deal

European stock markets rallied and the dollar slid Monday after Larry Summers withdrew from the race lead the US Federal Reserve, raising traders' hopes that a US stimulus wind-down will not be rushed.

Traders meanwhile welcomed news of a deal aimed at averting a US-led military attack on Syria, as they awaited this week's Federal Reserve meeting at which policymakers are expected to begin winding down the bank's stimulus programme.

London's benchmark FTSE 100 index rose 0.79 percent to stand at 6,635.99 points in afternoon trading.

Frankfurt's DAX 30 advanced 1.2 percent to 8,611.14 points and the CAC 40 in Paris won 0.68 percent to 4,142.6 points.

"News that Larry Summers has ruled himself out of the race to succeed Ben Bernanke as chairman of the Fed has been interpreted as a positive, with the market seemingly showing a preference for the continuity offered by current vice chair Janet Yellen," said Matt Basi, head of UK sales trading at CMC Markets.

In foreign exchange trade, the euro jumped to $1.3378 from $1.3298 on Friday. The dollar fell to 98.71 yen from 99.35 yen.

The British pound fell against the euro and gained against the dollar. Sterling slid to 1.1922 euros from 1.1940 euros on Friday, and rose to $1.5957 from $1.5872.

The price of gold eased to $1,314.75 an ounce on the London Bullion Market, from $1,318.50 Friday.

Markets were taken somewhat by surprise after Summers decided to withdraw from the race to become the next Fed chairman.

The two other top contenders for the post -- Yellen and former vice chair Donald Kohn -- were architects of the Fed's bond-buying and supporters of the approach laid out by current chief Ben Bernanke.

Summers was considered more hawkish towards the so-called quantitative easing scheme.

Yields on US treasury bonds were down on news of Summers's withdrawal from the Fed race. Ten-year bond yields stood at 2.789 percent and 30-year bond yields at 3.793 percent.

Attention this week is also on the Fed's plans for its $85-billion-a-month bond-buying scheme. With most economists betting the bank will announce a reduction of its purchases, the key issue is how quickly and by how much it will "taper".

Asian stock markets mostly rallied as fears of an attack on Syria receded after the United States and Russia agreed a deal for the Assad regime to give up its chemical weapons.

Hong Kong shares rose 1.47 percent, while Sydney ended 0.54 percent higher and Seoul finished up 0.96 percent.

However, Shanghai shares finished 0.22 percent lower on profit-taking after healthy gains last week fuelled by an improving outlook for the world's number two economy.

Damascus said at the weekend that it would commit to a plan to eradicate its chemical weapons after a deal brokered by Russia and the United States that may avert a threatened attack by US forces.

US Secretary of State John Kerry and his Russian counterpart Sergei Lavrov announced the deal Saturday that provides for Syria's toxic arsenal to be destroyed by mid-2014.

Global markets were sent into a tailspin last month on expectations of a US-led strike against Syria, fanning fears of a wider conflict in the Middle East.

"Given the (Syria) deal's potential to negate the need for significant military intervention it's no surprise the market has reacted positively, with memories of the lengthy operation in Iraqi still fresh in the mind," said Basi.

Wall Street followed global markets higher, with the Dow Jones Industrial Average opening up 0.96 percent.

The broad-based S&P 500 rose 0.93 percent, while the tech-rich Nasdaq Composite Index rose 0.79 percent.

In European stock movements, Air France-KLM shares gained 2.62 percent to 6.96 euros as the group moved ahead with plans to slash around 2,500 additional jobs. Chief executive Frederic Gagey will unveil the cost-cutting programme on Wednesday, a spokesman for the group confirmed.