European stocks in modest recovery ahead of US GDP

[January 29, 2010]  LONDON (AP) -- European stock markets on Friday recouped some of the previous day's big losses ahead of data expected to show that the U.S. economy grew at its fastest rate in almost four years. The euro languished over concerns about Greece's huge budget deficit.

The FTSE 100 index of leading British shares was up 32.97 points, or 0.6 percent, to 5,178.47, while Germany's DAX rose 45.14 points, or 0.8 percent, to 5,585.47. The CAC-40 in France was 24.99 points, or 0.7 percent, at 3,713.78.

European and U.S. stocks fell sharply Thursday after soft jobs data stoked concerns about the pace of the U.S. economic recovery ahead of next week's closely-watched nonfarm payrolls data for January.

At the moment, Wall Street futures are relatively flat, with Dow futures down 5 points, or 0.1 percent, at 10,057 and the broader Standard & Poor's 500 futures 1 point, or 0.1 percent, lower at 1,078.20.

The actual U.S. open could well hinge on the first estimate for fourth quarter U.S. economic growth, which will be released an hour before the opening bell. The consensus in the markets at present is that GDP will surge by an annualized rate of 4.8 percent from 2.2 percent in the third quarter.

Stuart Bennett, an economist at Calyon Credit Agricole, reckons the U.S. economy grew by an annualized rate of 5.3 percent in the fourth quarter, with more than half of the increase due to businesses building up their inventory levels again as growth returns.

"The jump in growth may soothe the markets lingering fears about the global recovery and by boosting risk appetite provide some support for equities," said Bennett.

The recent weakness in stocks -- the major indexes are down around 7 percent over the last couple of weeks -- has generated fears that the ten-month bull run in equities has come to a halt.

There are many reasons cited for the retreat, including fears of upcoming interest rate increases around the world, notably in the U.S., and China, and uncertainty surrounding President Barack Obama's plans to reform the U.S. banks.

Ben Potter, a research analyst at IG Markets, said much of the upcoming direction may well depend on whether the Dow Jones industrial average slips below the 10,000 level for the first time in almost three months. The Dow closed Thursday 1.1 percent lower at 10,120.46, having earlier fallen as low as 10,055.88.

"Bullish earnings news may have the potential to at least moderate the fall in equity prices but with traders well aware that the days of low interest rates in Europe and the U.S. are coming to a close, the prospect of rising borrowing costs and better returns on cash will obviously end up weighing on stocks," said Potter.

Investors are also increasingly unnerved by rising debt levels in European countries like Greece and Portugal.

Greece was once again in the headlines Friday with a number of reports suggesting that the country may end up having to be bailed out by its partners in the European Union if it is unable to raise money in the bond markets.

Worries about Greece have dogged the euro for the last couple of months.

The euro was down a further 0.1 percent at $1.3955, having earlier fallen to a six-month low of $1.3913.

"The dollar can continue to rise against the euro as European budgetary worries continue," said Neil Mackinnon, global macro strategist at VTB Capital.

Against the yen, the dollar was up 0.5 percent at 90.28 yen.

Earlier, Asian stocks responded to Thursday's sharp falls in Europe and the U.S.

Japan's Nikkei 225 stock average tumbled 216.25 points, or 2.1 percent, to 10,198.04 while Hong Kong's Hang Seng index slid 234.38 points, or 1.2 percent, to 20,121.99.

South Korea's Kospi fell 2.4 percent, to 1,602.43 and Shanghai's main index dropped another 0.2 percent. Australia's benchmark tumbled 2.2 percent, its resource-heavy market dragged lower by easing commodity prices.

Oil prices lingered near a six-week low below $74, with benchmark crude for March delivery up 25 cents at $73.89 a barrel. The contract lost 3 cents to settle at $73.64 on Thursday, the lowest since Dec. 14 when crude dropped to $73.46.

[Associated Press; By PAN PYLAS]

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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