European stocks close:

European stocks posted their biggest rally this month as banks climbed after a report showed German business confidence unexpectedly rose for a second month.

Stocks gained after German business confidence climbed in December, suggesting Europe’s largest economy is weathering the euro area’s debt crisis. The gauge of business confidence, based on a survey of 7,000 executives, rose to 107.2 from 106.6 in November, the Munich-based Ifo institute said today. The median economist forecast called for a drop to 106.

In the U.K., consumer confidence rose in November from a record low as Britons’ expectations for the economy improved in the run-up to Christmas, Nationwide Building Society said.

Spain sold 5.64 billion euros ($7.4 billion) of three-month and six-month bills, the Bank of Spain said, compared with the maximum target of 4.5 billion euros that the Treasury had set for the sale.

The average yield on the three-month debt dropped to 1.735 percent, compared with 5.110 percent when the securities were last issued on Nov. 22. The average six-month yield fell to 2.435 percent from 5.227 percent last month.

National benchmark indexes climbed in every western- European market except Iceland. France’s CAC 40 Index added 2.7 percent, Germany’s DAX Index jumped 3.1 percent and the U.K.’s FTSE 100 Index gained 1 percent.

Lenders paced advancing shares today. UniCredit rallied 6.3 percent to 74 euro cents. BNP Paribas surged 6 percent to 30.14 euros and Intesa climbed 5.8 percent to 1.29 euros.

Arkema soared 9.1 percent to 51.98 euros. The company, which is cheaper than any rival industrial-chemical producer, may be a takeover target for Saudi Basic Industries Corp. (SABIC) and DuPont Co. after deciding to spin off its unprofitable vinyls business.

Bayer rose 5 percent to 46.99 euros after the drugmaker said four of its medicines in development may contribute a combined 5 billion euros to annual revenue.