European stocks up as Greece cleared for loans

[August 05, 2010]  LONDON (AP) -- European stock markets rose Thursday as investors found cheer in a positive assessment of Greece's austerity program while they waited for comments from European Central Bank president Jean-Claude Trichet.

In Europe, the FTSE 100 index of leading British shares was up 16.45 points, or 0.3 percent, at 5,402.61 while Germany's DAX rose 20.42 points, or 0.3 percent, to 6,351.75. The CAC-40 in France was 26.13 points, or 0.7 percent, higher at 3,786.85.

The modest advance came as officials from the EU and the International Monetary Fund said Greece has made considerable progress in dealing with its financial crisis, though they noted that key challenges and risks remained.

The Greek government hopes to receive euro9 billion ($11.8 billion) in loans by Sept. 13 under a three-year program worth euro110 billion set up by the IMF and other EU countries using the euro.

In return, Greece has been implementing strict austerity measures that have seen it cut civil service pay and pensions and increase taxes. The IMF, ECB and EC hold quarterly reviews.

IMF official Poul Thomsen said he was "definitely confident" Greece would receive the next installment.

The verdict was largely expected though there were some nagging worries in the markets that the Greek debt crisis would re-explode with a vengeance.

For now, those concerns have been put back in the box and investors are readying for the European Central Bank's latest interest rate decision later.

Though the ECB is set to keep its key refinancing rate unchanged at 1 percent for the 16th month running, investors will be looking to see if Trichet will sound a more optimistic tone following a run of positive economic data and the seeming easing in the government debt crisis that engulfed the eurozone for much of this year.

Analysts said it wouldn't be a surprise if Trichet looks to steer clear from any big pronouncements given that the focus of attention has turned towards the pace of the U.S. economic recovery rather than the budgetary situation in financially shaky European countries, most notably Greece, Spain and Portugal.

"The ECB in particular may have sympathy with the idea of a boring policy meeting after months of talks of sovereign default, banking crisis or euro area implosion," said Frederik Ducrozet, an analyst at Credit Agricole.

Investors will be particularly interested to see if the ECB announces a further phasing out of emergency short-term credit operations to the banks following last week's decision to tighten collateral arrangements for its lending.

By contrast, U.S. officials are debating new steps. James Bullard, president of the Federal Reserve Bank of St. Louis, said last week that the U.S. Federal Reserve should revive a crisis-era program to buy government debt if the country seems headed toward a bout with deflation. Bernanke hasn't said what the Fed might do.

The immediate outlook for Fed policy may well rest on Friday's nonfarm payrolls data for July -- the numbers often set the market tone for a week or two, particularly in August, when trading volumes slump, particularly in the U.S. and Europe.

The consensus in the markets is that the U.S. economy shed around 65,000 jobs during July, though that figure will have been distorted by the fact that one-off census workers are no longer needed.

If the payrolls data come in below expectations then the markets will be on the lookout for additional measures to support the economy from the Fed. Most economists though doubt that the rate-setting panel will decide anything so quickly.

In the context of Friday's figures, there's every chance that weekly jobless claims figures from the Labor Department could have a bearing on sentiment. Given the uncertainty, Wall Street is expected to open largely flat later -- Dow futures were down 2 points at 10,633 while the broader Standard & Poor's 500 futures was unchanged at 1,124.60.

There was also little activity in the currency markets ahead of the interest rate decision and the jobs data.

The euro was trading 0.4 percent higher at $1.32 while the dollar was down 0.2 percent at 86.19 yen.

Eariler in Asia, Japan's benchmark Nikkei 225 stock index gained 164.58 points, or 1.7 percent, to 9,653.92, with shares boosted by gains in automakers, such as Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co.

Optimism surrounding the car manufacturers came after Toyota reported a quarterly profit of 190.5 billion yen ($2.2 billion), reversing from red ink a year earlier, and raised its annual profit forecast to 340 billion yen ($4 billion) from 310 billion yen ($3.6 billion).

Elsewhere in Asia, Australia's S&P/ASX 200 gained 0.5 percent to 4,566.50 and Hong Kong's Hang Seng closed flat at 21,551.72. South Korea's Kospi slipped 0.3 percent to 1,783.86 and the Shanghai Composite Index dropped 0.7 percent to 2,620.76.

Benchmark crude for September delivery was down 33 cents at $82.14 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 8 cents to settle at $82.47 on Wednesday.

[Associated Press; By PAN PYLAS]

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