European stocks lifted by upbeat earnings

[November 09, 2010]  LONDON (AP) -- European stock markets rose modestly Tuesday as a batch of strong corporate earnings from the likes of British mobile phone company Vodafone PLC and Swiss recruitment agency Adecco SA helped deflect mounting concerns that Ireland will have to be bailed out by its partners in the eurozone to stave off a damaging default.

In Europe, the FTSE 100 index of leading British shares was up 45.19 points, or 0.8 percent, at 5,895.15 while Germany's DAX rose 37.85 points, or 0.6 percent, at 6,788.35. The CAC-40 in France was 13.66 points, or 0.4 percent, higher at 3,927.36.

Wall Street was also poised for modest gains at the open -- Dow futures were up 17 points, or 0.2 percent, 11,379 while the broader Standard & Poor's 500 futures were up less than a point at 1,220.80.

The solid opening in Europe came after Vodafone reported a 3 percent rise in half-year operating profits to 6.1 billion pounds and raised its guidance for full-year profits following after higher than expected revenues growth around the world. Its shares, a major constituent of the FTSE 100 index, were trading over 1 percent higher.

Switzerland's Adecco saw its share price rise over 3 percent in Zurich after it reported a bigger than anticipated 42 rise in third-quarter profits. French luxury goods maker Hermes SA also impressed -- its share price was up over 3 percent too -- after it raised its full-year revenue forecasts following a third-quarter rebound.

"Solid updates have helped cheer investors and shake off the indifference that dogged yesterday's session," said Anthony Grech, head of research at IG Index.

On Monday, stocks traded within fairly narrow ranges following last week's bumper gains.

Stocks have been buoyed in recent weeks by expectations that the Federal Reserve would be pumping more money into the U.S. economy. Its decision last week to buy up $600 billion of assets sent many of the world's major stock indexes up to their highest levels since September 2008 when U.S. investment bank Lehman Brothers collapsed and sent in motion a chain of events that led to the deepest and longest global economic recession since World War 2.

The euphoria engendered by the Fed's second round of so-called quantitative easing has largely worn off and investors, particularly in bond and currency markets, are focusing in on Europe's ongoing debt problems and Ireland's ability to get its public finances in shape.

The growing worry in the markets is that Ireland's government may not be able to pass another bout of austerity measures on December 7, and that as a result it will have to seek financial assistance from its partners in the eurozone and the International Monetary Fund, as Greece had to earlier this year. That conclusion is clear from what's going on in bond markets with the spread between Irish and German ten-year yields seemingly rising to record highs on a daily basis.

"The ultimate end-game is likely to be some form of debt restructuring with economies like Ireland being compelled to seek EU/IMF aid," said Neil MacKinnon, global macro strategist at VTB Capital.

"The euro is reflecting these worries and is slipping against the major currencies," MacKinnon added.

By mid morning London time, the euro was flat at $1.3918. Earlier it had fallen as low as $1.3824, way down on last Friday's multi-month high of $1.4257.

Unlike Greece, which was effectively saved from bankruptcy by a euro110 billion bailout package from the eurozone and the IMF, Ireland's problems are related to its debts piled up by the banking system and not to historic government overspend.

"This means that even though the Irish government is funded for more than six months, Irish banks are almost entirely dependent on the European Central Bank to stay liquid," said Beat Siegenthaler, a senior currency strategist at UBS.

"Risks thus do not stem from any specific market deadline, as they did when a large Greek bond matured in May, but rather from domestic political resistance and an ECB and/or EU change of policy," Siegenthaler added.

Earlier, Asia's markets were pretty leaden.

Japan's Nikkei 225 stock average closed down 38.43 points, or 0.4 percent, to 9,694.49 with exporters pressured by the dollar's renewed fall against the yen. By mid morning London time the dollar was 0.6 percent lower at 80.72 yen.

Hong Kong's Hang Seng lost 1 percent to 24,710.60 and Australia's S&P/ASX 200 shed 0.8 percent to 4,740.7.

Chinese shares were mixed as caution stepped in over possible monetary policy moves to curb excess liquidity.

The benchmark Shanghai Composite Index lost 24.51 points, or 0.8 percent, to end at 3,135. The Shenzhen Composite Index for China's smaller, second exchange edged 0.3 percent higher to 1,380.59.

Benchmark oil for December delivery was down 5 cents at $87.01 a barrel in electronic trading on the New York Mercantile Exchange. The contract settled up 21 cents at $87.06 on Monday.

[Associated Press; By PAN PYLAS]

Associated Press writer Pamela Sampson in Bangkok contributed to this report.

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