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European Markets Close Sharply Higher as Omicron Fears Recede; Stoxx 600 Up 2.5%

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Activists passing by the Rijksmuseum, a key tourist attraction in Amsterdam.

  • The pan-European Stoxx 600 ended the day up 2.5%, with tech stocks rallying 5.6% to lead gains.
  • The strong European session comes as concerns about the potential severity of the omicron variant appear to be easing.
  • White House Chief Medical Advisor Dr. Anthony Fauci said on Sunday that the initial data regarding the variant was "encouraging."

LONDON — European stocks closed sharply higher on Tuesday as investors reacted to new developments relating to the omicron Covid variant.

The pan-European Stoxx 600 ended the day up 2.5%, with tech stocks rallying 5.6% to lead gains as all sectors and major bourses traded firmly in positive territory.

The strong session for European stocks comes after the region moved higher on Monday and global markets rallied, with concerns about the potential severity of the omicron variant easing.

White House Chief Medical Advisor Dr. Anthony Fauci said on Sunday that the initial data regarding the variant was "encouraging," though he cautioned that more information was needed to fully understand it.

Stocks across Asia-Pacific jumped on Tuesday, bouncing back from Monday losses as Wall Street rallied on optimism that the omicron variant risk might not be as bad as feared.

U.S. stocks extended their rally Tuesday, with the Dow Jones Industrial Average rising over 500 points while the S&P 500 and Nasdaq indexes also climbed.

Meanwhile, investors are also weighing the likelihood of the U.S. Federal Reserve removing its pandemic easing policies and hiking rates sooner than expected.

Comments by Fed officials suggest the central bank is likely to decide to double the pace of its taper to $30 billion a month at its December meeting next week. Initial discussions could also begin as soon as the December meeting about when to raise interest rates and by how much next year.

On the European data front, German industrial output surprised in October to grow 2.8% from the previous month, the Federal Statistics Office said Tuesday, after a revised contraction of 0.5% in September.

A Reuters poll had projected a 0.8% October climb. However, overall output remains 6.5% lower than in February 2020, prior to pandemic restrictions.

However, the ZEW economic research institute revealed that German investor sentiment declined in December as a fourth wave of Covid-19 cases and supply chain blockages in manufacturing dampened the growth outlook. The ZEW economic sentiment index fell to 29.9 from 31.7 in November.

In terms of individual share price movement, Volkswagen and Porsche shares jumped after a Handelsblatt report said the Porsche and Piech families were considering selling part of their VW stake to buy a substantial number of Porsche shares. Volkswagen surged 8.6% while Porsche rose 8.5%.

Toward the bottom of the index, AstraZeneca slipped 1.7% lower after Jefferies downgraded the British pharmaceutical company's stock to "hold" from "buy."

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— CNBC's Ryan Browne and Yun Li contributed to this market report.

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