February 23, 2012 / 1:02 PM / 6 years ago

Rising oil, weak EU forecasts hit shares

LONDON (Reuters) - Rising oil prices and forecasts showing the euro zone economy shrinking this year weakened European stock markets on Thursday and pulled the single currency back from 10-week highs.

Traders talk in front of a screen showing an index at Madrid's Bourse February 14, 2012. REUTERS/Sergio Perez

More upbeat data from Germany had given shares a boost in early trade and U.S. stock futures still pointed to a firmer open, with attention focused on data expected to show a slight rise in U.S. weekly jobless claims.

But the European Commission’s half-yearly forecast showed output in the 17 nations sharing the euro will contract by 0.3 percent and the broader EU bloc stagnate, putting markets back in negative territory.

“With Germany back to growth, weaker countries can benefit from increased demand for imports and should also return to some expansion later this year. However, ongoing austerity will continue to hold back economic growth,” said Christian Schulz, an economist at Berenberg Bank in London.

Investors are still struggling to put aside concerns about Greece and the conviction that a long-awaited second bailout agreed on Monday does not mark the end of Athens’ or the broader euro zone’s debt crisis.

The lack of growth makes it harder for governments to meet budget targets and reduce the levels of debt which have so unnerved markets.

Still, the euro was up 0.4 percent at $1.3294, after hitting an earlier high of $1.3343 on the back of the German Ifo survey of business, which rose for a fourth month and was its strongest since mid-December.

The FTSEurofirst 300 .FTEU3 index of top European shares was down 0.1 percent at 1076.50, while the MSCI world equity index .MIWD00000PUS was about 0.1 percent higher at 329.55.

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German PMI, IFO & GDP growth: link.reuters.com/puq93s

Brent to WTI spread: link.reuters.com/dyz46s

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FUEL COSTS

While the U.S. economy has been showing encouraging signs, growth momentum in Asia is slowing and economists worry that rising oil prices, linked to growing tension with Iran, will undermine efforts to put global growth on a stronger footing.

Oil prices, which soak up cash from both household and company budgets, rose to nine-month highs just over $124 a barrel. Because of weakness against the dollar, when converted into euros that represents an all time high of 93.60 euros a barrel.

“The negative impact (of the rising price of oil) is likely to be even greater on European economies because of domestic currency weakness,” Lee Hardman currency economist of Bank of Tokyo-Mitsubishi UFJ.

“The price of Brent crude oil priced in euros ... will provide another building headwind to growth in the region.”

U.S. crude futures for April were 15 cents firmer at $106.43 after climbing to a nine-month high of $106.28 a barrel the previous day. Brent crude for April delivery was up $1.27 at $124.17.

The doubts about the ability of Greece to implement the tough austerity measures needed to qualify for a 130-billion-euro bailout package and avoid defaulting on its debt continued to weigh on debt markets.

The Greek parliament was expected to endorse a debt swap with private bondholders later in the day that forms the core of the bailout package, despite new protests against tough budget cuts demanded in return for the rescue deal.

German government bond futures were 24 ticks higher at 138.77 in nervous trading, while 10-year cash yields were slightly higher just over 1.90 percent.

Additional reporting by Jessica Mortimer; editing by Patrick Graham

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