February 1, 2012 / 8:36 AM / in 6 years

GLOBAL MARKETS-Shares, euro firm as growth fears ease

* Global manufacturing surveys lift shares

* U.S. jobs report dents some enthusiasm

* Euro edges higher but debt fears weigh

By Richard Hubbard

LONDON, Feb 1 (Reuters) - Global stocks rose and the euro recovered from week lows on Wednesday after official data showed an unexpected expansion in China’s powerful factories in January and the first growth in German manufacturing in four months.

U.S. equity markets look set to extend the gains, with stock index futures pointing to a higher open even after the pace of job creation by private employers slowed in January, according to a report by payrolls processor ADP.

“The market is bullishly higher given the strong data from China and Europe. ADP may have tempered some enthusiasm and set up some trepidation for what Friday’s (nonfarm) payroll report might hold,” Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia said.

The report puts the focus more firmly on the U.S. January ISM Manufacturing index, which will be scrutinised for any sign of a loss of momentum in the U.S. economy.

Overall the manufacturing surveys remain relatively grim, with crumbling demand in Europe holding back more buoyant economies in Asia.

But some of the key numbers were better than feared, and that positive combined with hopes that Greece is edging towards a comprehensive deal on restructuring its debt to ease markets’ nerves at least momentarily.

China’s official purchasing managers’ index showed the factory sector expanded slightly in January and the separate indicator from bank HSBC contracted the least in three months.

While euro zone manufacturing activity declined for a sixth straight month in January, there was a slight upturn in Germany which failed to offset a prolonged contraction in the bloc’s smaller economies.

Britain’s manufacturing sector also surprisingly returned to growth in January as companies cranked up production, stirring hopes the country will skirt recession.

It all helped European shares gain 1.5 percent to hit a six-month high of 1,053.05 points, adding to strong gains of nearly 5 percent in January. Banks the best performing sector with the euro zone bank index gained 3.9 percent.

“The core European numbers are more or less in expansionary territory,” said Peter Dixon, global equities economist at Commerzbank.

“Germany continues to motor on and show a reasonable amount of dynamism and that will drag France along and maybe Italy, but it is not really going to help the likes of Greece that much and Portugal and maybe Spain will struggle.”

The MSCI world equity index, which has enjoyed a strong start to the year, seeing a rise of nearly 6 percent in January, was up 0.6 percent at 318.51.

GREEK DEAL

Greece, mired in talks about a debt restructuring needed to secure a second bailout package and avoid a messy default, saw a record drop in production for January and a sharp decline in new orders, which could lead to more job losses.

But investors are increasingly hopeful the debt talks will conclude with a deal that eases fears of a chaotic default which would ripple through the banking sector and debt markets.

Helped by resistance around the psychological 1.30 level against the dollar, the euro erased early losses after the PMI data, to be up about 0.7 percent to near $1.3170.

The dollar also fell to its lowest in three months against the yen, sparking concerns the Japanese authorities may step in, as traders adjusted positions to reflect the Federal Reserve’s pledge to keep interest rates near zero until late 2014, which left the door open to more quantitative easing.

Yields on U.S. Treasuries have fallen sharply since the Fed statement, with the five-year note near levels not seen since at least the 1960s.

Germany continued to see good demand for its debt despite low yields, selling just over 4.0 billion euros of new 10-year bonds at an average yield of 1.82 percent, down from 1.93 percent at a similar auction last month.

That reflects Bunds status as a safe haven from the broader euro zone crisis although yields on riskier 10-year Italian debt broke below 6.0 percent to around 5.8 percent.

Portuguese government bond yields also fell sharply after good results at a T-bill auction and on optimism that a Greek debt swap deal will be concluded this week.

In oil markets Brent crude rose above $112 a barrel, gaining for a second straight session, on fears that tensions between Iran and the West may escalate with U.S. lawmakers mulling more sanctions on Tehran, while the China manufacturing data also supported sentiment.

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