European growth hopes lift stocks

[July 22, 2010]  LONDON (AP) -- European stock markets rose Thursday after encouraging economic news more than offset any concerns generated by a downbeat U.S. economic assessment from Federal Reserve chairman Ben Bernanke.

The FTSE 100 index of leading British shares was up 33.33 points, or 0.6 percent, at 5,247.97 while Germany's DAX rose 69.11 points, or 1.2 percent, to 6,059.49. The CAC-40 in France was 40.66 points, or 1.2 percent, higher at 3,534.58.

The advance in Europe came as something of a surprise following sizable falls on Wall Street on Wednesday, when Bernanke said that the U.S. economic outlook was "unusually uncertain."

However, U.S. stocks were poised to recover most of Wednesday's losses -- Dow futures were up 91 points, or 0.9 percent, at 10,149 while the broader Standard & Poor's 500 futures rose 10.80 points, or 1 percent, to 1,074.70.

Alongside the relief engendered by the expected rebound in the U.S., European stocks have been supported by surveys indicating that fears of a double-dip recession have been vastly overplayed.

Monthly purchasing managers indices into the eurozone's manufacturing and services sectors -- closely watched gauges of business activity -- showed the recovery gaining traction.

The July composite index, which incorporates the manufacturing and services figures, rose to 56.6 in July from 55.6 in June. Anything above 50 indicates expansion and the higher the figure the greater the growth.

"July's rise suggests that, for now at least, the region is (perhaps surprisingly) evading the threat of a double-dip apparently facing the U.S.," said Ben May, European economist at Capital Economics.

In fact, the composite index would indicate that the eurozone, supposedly mired in a government debt crisis, may be growing at a quarterly rate of 0.8 percent, way above the average since the euro was established in 1999, May said.

Elsewhere, there was some evidence that the British economy's prospects may not be as bleak as many in the markets have been suggesting -- a monthly 0.7 percent increase in retail sales in June was a lot more than anticipated.

In Europe, in particular, attention is quickly turning towards the results of the stress tests into a large chunk of the EU's banks. The results are due after Europe's markets close on Friday and a number of investors remain skeptical about whether they are a credible exercise.

"We should all be bracing ourselves for relief to flow through European financial markets, but somehow this does not feel like an environment that will welcome such a result," said Mitul Kotecha, an analyst at Credit Agricole. "More likely questions will be asked about why did so few banks fail and why the tests were not rigorous enough."

The stress tests are becoming a key focal point in the currency markets.

By late-morning London time, the euro was up 0.6 percent on the day at $1.2825. The single currency has been undermined over the last couple of days by its failure to sustain a break above $1.30 and amid concerns about the stress tests.

Meanwhile, the dollar fell 0.2 percent to 86.76 yen.

Earlier in Asia, stocks recovered ground as Wall Street futures turned higher.

Japan's Nikkei 225 stock average slipped 0.6 percent to 9,220.82 while South Korea's Kospi fell 0.8 percent to 1,735.53. Australia dropped 0.9 percent to 4,374.70 and markets in Thailand, Indonesia and Malaysia were also lower.

China's Shanghai benchmark index rose 1 percent to 2,562.41 on bargain hunting after several days of losses. Hong Kong's Hang Seng index gained 0.5 percent to 20,589.70.

Benchmark crude for September delivery was up 33 cents to $76.89 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.02 to settle at $76.56 on Wednesday.

[Associated Press; By PAN PYLAS]

Associated Press writer Alex Kennedy in Singapore contributed to this report.

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