Stocks buoyed by US jobs hopes as ECB meets

[March 03, 2011]  LONDON (AP) -- Stocks regained their composure Thursday after upbeat U.S. employment figures helped deflect some attention from worries about how increasing fighting in Libya is disrupting its oil production.

The monthly survey from the ADP payrolls firm has helped lift sentiment in the run-up to Friday's U.S. government report, which often sets the market tone for a week or two after its release.

ADP's finding that private companies added 217,000 jobs in February, well above the 180,000 analysts had predicted, has ratcheted up expectations about Friday's figures. The consensus before the ADP survey was that U.S. employers added around 175,000 jobs. Some analysts now think the actual figure could be up around the 250,000 mark.

"Bullish investors will be hoping the trend continues today," said Yusuf Heusen, a senior sales trader at IG Index.

In Europe, the FTSE 100 index was up 1 percent at 5,975 while Germany's DAX rose 0.8 percent to 7,238. The CAC-4o in Paris was 1 percent higher at 4,075.

Wall Street was poised for a solid opening following Wednesday's modest gains -- Dow futures were up 75 points at 12,121 while the broader Standard & Poor's 500 futures rose 9.2 points to 1,315.

How Wall Street actually performs may well hinge on the upcoming figures. Particular focus will center on the weekly jobless claims data as well as the monthly non-manufacturing survey from the Institute for Supply Management.

It's not just the U.S. in focus though. In Europe and certainly in the currency markets, all eyes will be on the outcome of the monthly policy meeting of the European Central Bank.

The ECB's main interest rate is expected to be left unchanged at the record low of 1 percent, but investors will be interested to see if the bank's president Jean-Claude Trichet sounds a more hawkish tone over inflation in his press conference.

If he does, then the markets may move to price in a swifter-than-anticipated interest rate increase from the ECB. Now the prevailing view is that there won't be a rate hike until the last three months of end of this year, even though inflation is currently running at 2.4 percent and above the ECB's target at "close to but below" 2 percent.

"Given the problems in Europe, any decision on rates is unlikely at today's rate meeting but of particular interest will be the tone of Trichet's press conference and the banks outlook for inflation and growth forecasts going forward into 2011," said Michael Hewson, market analyst at CMC Markets.

Ahead of the rate decision, the euro was flat at $1.3866 while the dollar was 0.1 percent lower at 81.77 yen.

Hovering in the background though is the crisis in Libya as Moammar Gadhafi's regime tries to claw back some ground. Rebels deployed around the strategic oil installation at Brega on Thursday, a day after they foiled an attempt by Gadhafi loyalists to retake control of the port in rebel-held eastern Libya.

The rebellion has shut down oil production in many parts of the country. While Libya's oil fields produce only about 2 percent of global demand, experts say the disruption is putting pressure on world supplies.

Coupled with concerns that uprisings in the Arab world, which have already brought down the leaders of Tunisia and Egypt, could spread to other oil-rich countries in the Middle East, oil prices remain at elevated levels.

By late morning London time, a barrel of crude on the New York Mercantile Exchange was trading 23 cents lower at $102 a dollar while the equivalent Brent rate in London fell 75 cents to $115.61. Despite the modest declines. both rates are now edging up to last week's levels, when the New York rate hit $102 a barrel and the Brent rate neared $120.

The growing view that this oil price spike is here to stay has heaped pressure on stocks. Over recent weeks, stocks have traded in opposite directions to energy prices. When they rise, investors get worried about the impact on the global economic recovery; when they fall they breathe a sigh of relief that the damage won't be too bad.

Events in the Middle East and North Africa will likely remain at the forefront of investors' thoughts, especially if Saudi Arabia, the world's biggest oil exporter, were to become embroiled in a similar uprising. Then many analysts think oil prices could rise to $200 a barrel, with damaging consequences for the economy. Not only would growth be hit but inflation would spike up sharply, too.

Earlier in Asia, South Korea's Kospi Composite Index, rose a hefty 2.2 percent to 1,970.66 after the government said industrial output grew for the 19th straight month in January, while Japan's Nikkei 225 stock average climbed 0.9 percent to 10,586.02.

Hong Kong's Hang Seng index was 0.3 percent higher to 23,122.42 but mainland Chinese shares fell as profit taking in the afternoon offset morning gains. The benchmark Shanghai Composite Index lost 0.4 percent to 2,902.98, while the Shenzhen Composite Index lost 1.6 percent to 1,272.00.

Chinese shares will likely remain volatile as investors guess whether recent data showing the economy is growing more slowly than in recent months will pre-empt further inflation-fighting moves by the government, analysts said. The opening of the annual session of the national legislature is adding to the sense of caution.

[Associated Press; By PAN PYLAS]

Pamela Sampson in Bangkok contributed to this story.

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