January 10, 2012 / 4:52 AM / 6 years ago

Stocks gain on U.S. hopes, euro holds above lows

LONDON (Reuters) - Hopes for U.S. corporate results lifted global stocks on Tuesday and signs the debt-scarred euro zone economy might be less fragile than feared kept the shared currency clear of recent lows.

U.S. index futures pointed to a stronger open on Wall Street after stocks finished slightly higher in the previous session.

The contrasting fortunes of U.S. and European markets were highlighted by a profit warning from Europe’s biggest consumer electronics maker Philips (PHG.AS) of soft fourth quarter profits due to weakness in its home region.

But European shares took heart from a positive outlook overnight for global demand from U.S. aluminum giant Alcoa (AA.N) to rise steadily from the start.

Nervous currency markets stayed focused on the outlook for the euro zone economy, government debt sales and how the region’s banks will raise much needed capital to repair their balance sheets.

The euro rose to hold above 16-month lows hit on Monday, underpinned by a solid Austrian bond sale little influenced by the country’s heavy exposure to Hungary and by data showing a surprise jump in French industrial output in November.

“Recent developments seem to suggest that activity in the biggest EMU countries is not on the verge of a full-blown collapse,” Annalisa Piazza, economist at Newedge strategy, said.

The key FTSEurofirst 300 .FTEU3 stocks index was up 1.7 percent at 1,025.82 points, with gains led by mining stocks, while the global MSCI world equity index .MIWD00000PUS added nearly 1.0 percent, helped by earlier gains in Asian markets.

The positive sentiment from Alcoa spread to the European STOXX Oil & Gas index .SXEP, which hit a 10-month high and extended a rally that began at the start of the year, to be up 1.1 percent on the day at 352.4 points.

“A good start to the earnings season; it shows the demand outlook is not so bad and we could get more positive surprises,” Mike Lenhoff, chief strategist and head of research at Brewin Dolphin Securities, said.


The euro was up 0.3 percent to its high for the day at $1.2810 and firmly above Monday’s low of $1.2666 hit, due mainly to traders buying back the currency to square their positions after recent heavy selling.

The single currency could come under renewed pressure before bond auctions on Thursday and Friday from Spain and Italy, the two major euro zone economies most exposed to the debt crisis.

“It’s still a weak and vulnerable euro going forward, with no sign of a quick solution to the debt problems in the euro zone,” Niels Christensen, currency strategist at Nordea in Copenhagen said.

Attention centered on France, where the central bank said growth had stalled in the fourth quarter of 2011 in the euro zone’s second-biggest economy, although its measure of industry activity and sentiment picked up very slightly in December.

French industrial production also rose 1.1 percent in November, bucking expectations for no growth.

Earlier, data showed China’s exports and imports grew at their slowest pace in more than two years in December. The figures fuelled expectations of more policy action from Beijing to support the world’s second biggest economy, and most Asian markets gained on Tuesday.


But debt concerns are never far away and while German government bonds slipped as the equity market gained, any weakness was expected to be capped by growing concerns about Greece, where the debt crisis began more than two years ago.

Germany and France warned on Monday that Greece, whose economy is deep in recession, will get no more bailout funds until it agrees a deal with private bondholders to avert a potential default.

Meanwhile Austria easily sold 1.3 billion euros of 10-year bonds despite fears about its banks’ exposure to neighboring Hungary, which is locked in a dispute with the IMF over international aid.

Worries about the health of euro zone banks were also highlighted by another record high in overnight deposits held at the European Central Bank by commercial lenders, scared of lending to each other.

The banks are awash with cash after taking an unprecedented 489 billion euros in the ECB’s first-ever three-year liquidity operation late last month.

Later the U.S. Treasury Department will sell $32 billion in three-year notes. With the Federal Reserve having anchored short-term rates with a pledge to keep them near zero at least through the middle of 2013, the market is seen as unlikely to have much trouble absorbing the fresh supply.

The Treasury will also sell 10-year notes and 30-year bonds this week.

Additional reporting by Joanne Frearson and Jessica Mortimer; Editing by John Stonestreet/Ruth Pitchford

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