European Markets Recover

LONDON�European stock markets posted their 10th straight month of gains on Thursday, after data showed German retail sales rose unexpectedly in February and banks reopened in Cyprus without signs of panic.

The Stoxx Europe 600 index added 0.5% to close at 293.78, after losing 0.4% on Wednesday. On the month, it added 1.3%.

The index rose for a third consecutive quarter, up 5%, buoyed by optimism over economic recovery in the U.S. and pledges by the European Central Bank to keep monetary policy accommodative. However, worries over political turmoil in Italy following inconclusive election results and financial stress in Cyprus spooked investors toward the end of the quarter.

"I think Cyprus will linger for some time, but we have not seen a huge market reaction, which suggests that the ECB action has worked and helped decrease the risk of systemic panic," said Philip Shaw, chief economist at Investec Securities.

In the U.S., the Standard & Poor's 500-stock index on Thursday jumped above its record close, set in October. Markets were broadly unfazed by largely disappointing data, which had weekly jobless claims up by 16,000 and saw a gauge of business activity in the Chicago region come in weaker than expected. U.S. growth for the fourth quarter last year was revised up to 0.4%.

Among notable movers in Europe, shares of D.E. Master Blenders 1753 surged 25% to �12.05 ($15.40), after the coffee company said it is in talks with Joh. A. Benckiser to be taken over for �12.75 a share.

Shares of Tele2 gained 4.5%. Late Wednesday, the Swedish telecom firm said it would sell its Russian unit to VTB Bank for $3.5 billion. A1, the investment arm of Russia's Alfa Group, said it would make a counter offer.

European stock investors further monitored developments in Cyprus, where banks opened their doors for the first time since the nation agreed to a bailout package with international lenders. The government imposed strict capital controls to avoid a bank run, limiting withdrawals to �300 in cash a day. Television news reports showed orderly queues at branches in Nicosia.

The Cyprus Stock Exchange remained closed for trading.

"There is still a certain degree of nervousness over the Cypriot situation, but to an extent it has been calmed by measures related to the bank reopening. There are no signs of panic and that has also been the case elsewhere," said Mr. Shaw from Investec Securities.

"There's a widespread feeling that Cyprus is a unique case and the bail-in model that was used in the bailout will certainly not be used in most major countries. You can't of course rule anything out, but there are good reasons why it was applied in Cyprus," he added. "Number one, the size of the bailout was large compared with the size of the economy. Even the �10 billion supplied by the troika counted for 53% of annual GDP."

The second reason, he said, was that the island nation had been perceived as being too relaxed on financial regulation, which had attracted a degree of money laundering, leaving a haircut on large deposits as a way of cleaning up the system.

Late Wednesday, Moody's Investors Service said the highest rating it can assign to a domestic debt issuer in Cyprus is Caa2, citing increased risk that the troubled nation will exit the euro zone.

Italy was also in the spotlight, as center-left leader Pier Luigi Bersani told President Giorgio Napolitano that he will report back in the evening on his attempts to form a government, after weeklong negotiations with other party leaders. Hopes that he was close to forming a coalition crumbled on Wednesday as he declared that only an "insane person" would want to govern in the current political environment.

Italy's FTSE MIB index slipped 0.1% to 15338.72 and lost 5.7% on the quarter. For the month it gave up 3.7%.

Investors in Europe further looked to Germany, where retail sales unexpectedly picked up 0.4% in February, beating expectations of a 0.4% decline. The DAX 30 index rose 0.1% to 7795.31 and settled 2.4% higher on the quarter. For the month it added 0.7%.

Shares of drug maker Bayer gained 1.6%, as it in collaboration with Syngenta proposed an action plan to unlock a stalemate over bee health in the EU. Shares of Syngenta were up 0.3%.

France's CAC 40 index gained 0.5% to 3731.42, while climbing 2.5% on the quarter and 0.2% in March.

Carrefour picked up 2.4%, as Standard & Poor's changed its outlook on the supermarket retailer to "positive" from "stable."

The U.K.'s FTSE 100 index rose 0.4% to 6411.74, closing out the quarter 8.7% higher and the month with a 0.8% gain.

InterContinental Hotels Group gained 2.8%. The hotel operator said it sold its leasehold interest in InterContinental London Park Lane for gross cash proceeds of �301.5 million ($456.1 million).

Write to Sara Sjolin at sara.sjolin@marketwatch.com