European shares consolidate stimulus rally, but U.S. data a risk

LONDON, July 5 Fri Jul 5, 2013 3:06am EDT

LONDON, July 5 (Reuters) - European shares consolidated on Friday, with uncertainty ahead of a key U.S. jobs report making investors reluctant to extend the previous day's strong rally on pledges of continued stimulus by the ECB and the Bank of England.

The FTSEurofirst 300 was flat at 1,179.02 points by 0703 GMT . The index rallied 2.4 percent on Thursday in its best showing in 11 months after BoE and ECB both offered unprecedented forward guidance, signalling that they were in no hurry to withdraw stimulus.

Friday, though, could test whether the dovish stance across Europe is enough to offset concerns about the U.S. Federal Reserve's plans to scale back its quantitative easing (QE) stimulus if the economy continues to show signs of recovery.

Thus, markets are likely to remain nervous ahead of the 1230 GMT U.S. non-farm payrolls release, and equities could sell off if they beat the consensus 165,000 new jobs, or if the jobless rate is below the forecast 7.5 percent.

"It's going to be an interesting day. Now we have anchoring into the future of lower rates from the ECB, so that will be positive for equity markets in that region. But non-farm payrolls are on the tap and  if you get really good numbers then it will increase the probability of QE tapering before time, which could create a negative reaction in the short term," said Peter Garnry, head of equity strategy at Saxo Bank.

"But I only think that is a short term potential reaction ... and equities could easily be 10 percent higher over the next 12 months, or even 15 percent higher."