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 An unexpected pickup in Europe's service industry was offset by
underwhelming factory activity, but was enough to show that the euro
zone's fragile recovery has some traction.
Early readings from Germany, the bloc's industrial heartland, set a
strong tone while France remained the laggard.
"This doesn't change the picture of the euro zone having one of its
best growth spells in the past three years. It's broad-based, with
the one exception being France," said Rob Dobson, senior economist
at survey compiler Markit.
Riskier assets were in vogue after manufacturing data showed some
signs of the economy stabilizing in China. Meanwhile, minutes from
the U.S. Federal Reserve's last meeting showed it was in no rush to
raise interest rates.
European stocks <.FTEU3> rose 0.2 percent, with the main bourses in
London <.FTSE>, Frankfurt <.GDAXI> rising 0.3 percent respectively,
and Paris <.FCHI> up 0.1 percent.
Government bond yields also dipped, with expectations of further
monetary easing from the European Central Bank supporting bond
prices and allaying trepidation about EU elections.
The first polls for the European Union parliament since the bloc's
debt crisis blew up open on Thursday, and an expected rise in
eurosceptic parties threatens to destabilize some governments or
sway them to delay any painful economic reforms.
Spanish and Italian 10-year yields were both 2 basis points lower at
3.00 and 3.18 percent, respectively, while German Bunds dipped 1 bps
to 1.37 percent.
REVIVING MARKETS
The ECB has already strongly hinted it will cut rates at its June
policy meeting, moving the deposit rate into unprecedented negative
territory.
"If banks have to pay interest on the money they park in the euro
system, this could revive the money market between banks, among
others, and therefore also stimulate lending to businesses," said
ECB Governing Council member Jens Weidmann.
Targeted measures aimed at boosting lending to small- and mid-sized
firms program and a program of asset purchases, known as
quantitative easing, has also been mooted.
As well as nurturing growth, the bank wants to stave off deflation
and cool a stubbornly strong euro. The euro was back under $1.37 on
Thursday, towards the lower end of a very tight range it has held in
all week.
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LOSING APPEAL
Sterling fell against the dollar and the euro on Thursday after UK
data showed a bigger-than-expected fiscal deficit, prompting some
investors to take profits in the pound's recent rally to 5-1/2 year
highs. <GBP/>
Markets looking for the Bank of England to raise rates early next
year, and a surge in retail sales underlining the strength of the
UK's recovery, is keeping the pound firm.
Elsewhere, the yen eased versus the dollar on Thursday and edged
away from a 3 1/2-month high.
The yen has risen in recent weeks, partly because speculation has
receded that the Bank of Japan will ramp up monetary stimulus.
One focal point for the yen is whether Japanese investors will step
up their investment in higher-yielding overseas assets, at a time
when domestic bond yields have been held low by the BOJ's massive
monetary stimulus.
In a sign of such yield-seeking behavior by Japanese investors,
Japan Post Insurance is investing more in Japanese stocks and
foreign bonds, according to disclosures and a person with knowledge
of the investment strategy.
(Editing by Larry King/Ruth Pitchford) nL6N0O646K
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