August 5, 2014 / 12:15 PM / 3 years ago

GLOBAL MARKETS-Upbeat earnings cheer Europe shares; PMIs hit euro

(Updates prices, adds fresh analyst comments, details)

* European shares rise after encouraging earnings reports

* Asia hit by unexpected weakness in China services PMI

* Euro falls after subdued services activity data

* Wall Street expected to fall at open

By Emelia Sithole-Matarise

LONDON, Aug 5 (Reuters) - European shares eked out gains on Tuesday after a number of blue-chip companies reported upbeat earnings. The euro fell after a disappointing set of reports on services activity.

The three main futures indices on Wall Street pointed to a softer open on Wall Street before a survey of the U.S. non-manufacturing sector that could help show how fast the world’s biggest economy is expanding.

European PMI figures showed the continent’s economy was growing, as expected. But a dip in the Italian index’s reading indicated the recovery remained fragile, keeping alive expectations the European Central Bank will ease monetary policy further. That put pressure on the euro.

Investors in Europe were cheered by forecast-beating results from German luxury carmaker BMW and France’s third-biggest listed bank, Credit Agricole, among others.

The pan-European FTSEurofirst 300 index of leading shares was up 0.6 percent at 1,337.70, a small recovery from its near 4 percent fall over the past two weeks.

The index has been pummelled by concerns about tighter U.S. monetary policy, financial trouble at BES, Portugal’s largest bank, and conflict in Ukraine and Gaza. Those concerns are still weighing on the market, and analysts said the downtrend may resume shortly.

“This is mostly a technical bounce after such a slide, but the background remains the same: the Ukrainian crisis still poses a serious risk to Europe, and I don’t think it’s priced in already, especially by retail investors,” said Riccardo Designori, market analyst at Brown Editore in Milan.

“Countries like Germany and Italy depend on Russia for oil and gas. The crisis can seriously escalate when the winter kicks in. Just think about all the German companies with exposure to Russia, or Italian names ... This crisis is far from over.”

The picture was glum in Asian equities after China’s HSBC/Markit services PMI fell to 50.0 in July from a 15-month high of 53.1 in June. It was the lowest reading since November 2005, when the data collection began, indicating a recovery in the broader economy is still tentative and may need further government support.


The euro fell to a day’s low of $1.3382 after the euro zone’s services PMIs, with initial declines sparked by Italy’s Markit/ADACI business activity index. The index slipped to 52.8 in July from 53.9 in June. Economists in a Reuters poll had expected 54.0. The broad euro zone PMI figure came in at 54.2, slightly below expectations.

“It (the euro) certainly has reacted negatively to the Italian numbers,” said Neil Mellor, a currency strategist with Bank of New York Mellon in London.

“On the main numbers, even 54 is not exactly a figure that sets the world alight. It returns us to what we’ve been seeing for a few weeks now - that the momentum in Europe is faltering.”

The corresponding U.S. survey is due later in the day and expected to show a robust reading.

The dollar held below a 10 1/2-month peak against a basket of currencies. It was held back by a fall in Treasury yields overnight, after weaker-than-expected U.S. non-farm payrolls data on Friday knocked it off the 103 threshold.

U.S. 10-year yields held steady in European trading at 2.49 percent as the bond market retained its bullish tone after rallying Friday on the jobs report.

In commodities, Brent crude held above $105 a barrel despite ample supplies, underpinned by political tension in the Middle East and North Africa and expectations that data will show a further draw on U.S. crude inventories last week.

Brent rose for the second straight session, climbing 20 cents to $105.61 after gaining 57 cents on Monday. (Additional reporting by Blaise Robinson and Patrick Graham, editing by Larry King)

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