European stocks rallied the most in more than two months as the Federal Reserve’s decision to slow the pace of its stimulus boosted investor confidence that the U.S. economic recovery is on course.

The Stoxx Europe 600 Index rose 1.6 percent to 319.06 at 4:30 p.m. in London, for its biggest two-day gain since June. The gauge pared its losses since Nov. 28, when it hit its highest level since May 2008, to 1.9 percent.

The Fed said yesterday it will reduce its bond purchases to $75 billion a month from $85 billion in January, taking the first step toward unwinding the stimulus that Chairman Ben S. Bernanke put in place to help the economy recover from one of its worst recessions.

The U.S. central bank reiterated that it intends to hold its target interest rate near zero at least as long as unemployment exceeds 6.5 percent and the outlook for inflation is no higher than 2.5 percent. Twelve out of 17 Federal Open Market Committee participants predict the first increase in the main interest rate will come in 2015.

In Europe, finance ministers reached an agreement on how to deal with failing banks in the 17-nation euro area by pledging a 55 billion-euro ($75 billion) industry-financed fund for the next 10 years. They also backed an agency to make decisions on handling failing banks and when to share costs.

National benchmark indexes rose in all of the 18 western-European markets.

FTSE 100 6,584.7 +92.62 +1.43% CAC 40 4,177.03 +67.52 +1.64% DAX 9,335.74 +153.99 +1.68%

Saab surged 33 percent to 176.60 kronor, its highest price since May 2008. The Swedish maker of Gripen jets beat Boeing Co. and Dassault Aviation SA to win the contract to supply 36 jet fighters to Brazil. Celso Amorim, the South American country’s defense minister, said the government picked Saab over Boeing because of the performance and cost of its aircraft as well as Saab’s willingness to transfer technology. The deal is worth $4.5 billion through 2023.

Amadeus rose 3.8 percent to 29.47 euros, its highest price since it listed its shares in April 2010. Group revenue will reach 3.16 billion euros in 2013, while adjusted earnings will be 1.40 euros per share, the company said late yesterday. The forecasts beat the average analyst estimates of 3.1 billion euros in sales and 1.39 euros in earnings per share. Amadeus will also increase its gross interim dividend to 30 euro cents.

Algeta advanced 1.4 percent to 358.60 kroner, its highest price since it sold shares to the public in 2007. Bayer said it will buy the Oslo-based drugmaker for about 17.6 billion kroner ($2.9 billion). Bayer will make the offer at 362 kroner per share. Algeta said last month it had received a preliminary offer from Bayer for 336 kroner.

Mediaset SpA jumped 16 percent to 3.37 euros, its biggest rally since its listing in 1996. Deutsche Bank AG analyst Laurie Davison wrote that a plan by the company and Mediaset Espana Comunicacion SA to spin off their pay-TV operations was aimed at bringing in a partner for that business. A stake sale in the new entity to Vivendi SA or Al-Jazeera could reduce the costs of soccer-broadcasting rights, the analyst wrote.

AstraZeneca Plc added 1 percent to 3,597 pence, the lowest price since March 2002. The drugmaker will pay as much as $4.3 billion to buy Bristol-Myers Squibb Co.’s share of their diabetes drugs joint venture. The purchase gives AstraZeneca sole control of treatments such as Onglyza and Forxiga.