European stocks advance as Fed hints at rate rise

Currency dealers walks past an electronics board showing the KOSPI at a dealing room of a bank in Seoulby Roland JACKSON

European stock markets climbed on Thursday, cheered by hints the US Federal Reserve could raise interest rates sooner than expected in view of US growth, despite mixed eurozone data.

Frankfurt’s main DAX index jumped 0.93 percent compared with Wednesday’s close to end the day at 9,401.53 points.

London’s benchmark FTSE 100 added 0.33 percent, ending on 6,777.66 points, while in Paris the CAC 40 surged 1.23 percent to 4,292.93 points.

“Global stocks headed higher once again, with European benchmark indices resuming the relief rally after a momentary pause yesterday saw investors take short-term profits,” said Kash Kamal at Sucden Financial.

“The rally may be set to continue right until the end of the week as investors remain bullish ahead of further details from central bankers regarding market conditions.”

Minutes from the July 29-30 Fed meeting showed policy makers increasingly at odds over the strength of the US labour market and what that means for inflation.

The intensifying debate signalled an increased, albeit measured, level of hawkish sentiment in the Fed that could speed up interest rate rises, dealers said.

The news cheered markets, despite disappointing data from the eurozone and the world’s number two economy China.

“We are still grinding out gains and the relative calm in terms of the geopolitical agenda… is continuing to lend support,” said Tony Cross, a market analyst at Trustnet Direct.

Wall Street stocks were more muted as traders fretted about the outlook from the Fed, despite better-than-expected employment data offering fresh evidence of tightening in the labour market.

In mid-afternoon trading, the Dow Jones Industrial Average gained 0.40 percent to 17,046.62 points.

The broad-based S&P 500 rose 0.21 percent to 1,990.77, while the tech-rich Nasdaq Composite Index was flat at 4,040.41.

– Mixed eurozone data –

Investors meanwhile digested mixed surveys from private research group Markit for the latest reading on the eurozone economy.

Markit’s purchasing managers’ index (PMI) measure of output in the eurozone’s manufacturing and services sectors registered a figure of 52.8 in August.

That indicated expansion in the region, but was lower than July and showed weakness in the bloc’s top economies.

France remained largely stagnant after three straight months of contraction while in Germany, the region’s powerhouse, output dropped compared to July due to a fall in manufacturing output.

“August’s fall… was the fourth in six months, adding to signs that the region’s feeble recovery is already over,” said Capital Economics analyst Jennifer McKeown.

In corporate news, shares in Germany’s second-biggest airline Air Berlin soared 8.51 percent after it flew back into profit in the second quarter and promised a massive restructuring programme.

Siemens shares also gained 1.93 percent after the German engineering giant said it won a contract worth 650 million euros ($860 million) to supply wind turbines to Norway’s Statoil and Statkraft.

– Fed, China hit commodities –

Weak data from China and the Fed’s more hawkish stance also hurt commodity prices, which investors tend to find more attractive when interest rates are low.

HSBC data showed China’s manufacturing growth slowed in August, indicating a recovery in the world’s second-largest economy has yet to take hold.

That “held down miners Fresnillo and Rio Tinto while the huge price drop in gold meant Randgold was a big faller,” said Jasper Lawler at CMC Markets.

The price of gold dropped to $1,275.25 an ounce on Thursday, from $1,295 on Wednesday on the London Bullion Market.

In foreign exchange deals, the European single currency recovered to $1.3285, having stuck a one-year low against the dollar at $1.3242 in earlier Asian trade after the Fed’s rate-hike hint.

The euro firmed slightly to 80.08 pence from 79.90 pence late in New York on Wednesday, while the pound eased to $1.6590 from $1.6593.

Asia’s main equity markets experienced mixed fortunes on Thursday.

Hong Kong lost 0.75 percent and Shanghai was off 0.40 percent. Seoul dropped 1.20 percent, but Tokyo gained 0.77 percent and Sydney added 0.42 percent.

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