REFILE-GLOBAL ECONOMY-U.S. service sector grows, Europe more optimistic

Tue Feb 5, 2013 12:29pm EST

Related Topics

* U.S. service sector grows, housing prices vault higher
    * Euro zone economy starting to recover, Germany leads way
    * European services firms most optimistic in eight months
    * Chinese services sector at 4-mnth peak, business
confidence rises

    By Steven C. Johnson
    NEW YORK, Feb 5 (Reuters) - The vast U.S. services sector
expanded again last month, extending a three-year run of growth,
while European business optimism hit an eight-month high,
suggesting the euro zone economy was starting to recover.
    Rising corporate confidence also helped China's services
sector grow at its quickest pace in four months, providing more
evidence of a gradual rebound in the world's second largest
economy.
   The data on Tuesday bolstered the view that things were
looking up for the world economy, a sentiment that has lifted
stock markets around the globe and pushed the U.S. benchmark S&P
500 to five-year highs.
    "I think people are optimistic right now," said Michael
Woolfolk, senior currency strategist at BNY Mellon in New York.
"The view is you want to buy risky assets on good data and
ignore the bad data."
    While the Institute for Supply Management's service sector
index eased slightly in January, it still showed the sector
continued to grow for a third straight year.
    A report from data analysis firm CoreLogic said U.S. home
prices rose for a 10th straight month in December, with the
year-on-year jump the biggest since May 2006 
    
    HOPE AND WORRY IN EUROPE
    The outlook in Europe was more subdued, though surveys on
Tuesday offered evidence that the worst of the downturn in the
17-country euro zone may have passed.
    Markit's Eurozone Composite PMI, based on business activity
across thousands of companies, and a good gauge of economic
growth, rose in January to a 10-month high of 48.6 from 47.2 in
December.
    While still below the 50 mark that divides growth and
contraction, its rise in January was its third straight. Private
industry makes up nearly two-thirds of the euro zone's economy. 
    Germany, the euro zone's biggest economy, took the lead,
with the PMI chalking up its biggest one-month rise since August
2009 to soar to its highest level since June of 2011.
    The reading for the bloc's second-biggest economy France,
however, plummeted to its lowest in nearly four years, below
readings from perennial laggards Spain and Italy.
    "That's a really worrying sign. It's going to cause more
tensions between Germany and France ... on various aspects of
euro zone management," said Jennifer McKeown, economist at
consultancy Capital Economics.
    "France will continue to call for more supportive policy,
not just for the periphery but the euro zone as a whole. Germany
is taking a much more hard-line stance."
    The euro zone economy probably contracted 0.4 percent at the
end of last year, notching up its third negative quarter, and is
likely to stagnate in the current period, according to a Reuters
poll published last month. 
  
 

    BRITISH, CHINESE FIRMS SEE GROWTH
    Activity rose among Britain's services firms, which account
for more than three-quarters of gross domestic product.
    "The UK services PMI has bounced back into growth territory,
dampening fears over an unprecedented triple-dip recession being
called," said James Knightley at ING.
    After only one quarter of expansion, Britain's economy
contracted again at the end of last year. That put it on the
brink of its third recession in four years.
    In China, the HSBC services purchasing manger's index rose
to 54 last month, with service sector firms confident about the
future. 
    The business expectation index -- one of many accompanying
sub-indices that do not contribute to the overall PMI business
activity reading for the services sector -- rose to its highest
since May 2012 at 64.4.
    "China's growth recovery is now on a firmer footing," said
Qu Hongbin, a HSBC economist. "Solid job gains plus higher
business expectations bode well for further improvement of the
services sector's growth."
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