By Tommy Stubbington and Clare Connaghan
European shares bounced back Wednesday after
stronger-than-expected Chinese economic growth data trumped market
jitters over an escalation of tensions between Ukraine and
Russia.
In currency markets, sterling surged to a two-month high after
some robust U.K. employment data further boosted the perception
that the Bank of England is likely to be the first major central
bank to raise interest rates.
The Stoxx Europe 600 index closed 1.3% higher, more than
recovering Tuesday's 1.0% decline. Germany's DAX added 1.6%,
France's CAC-40 was 1.4% higher and the U.K. FTSE 100 added
0.7%.
The gains followed data showing Asia's largest economy grew 7.4%
in the January-to-March period compared with a year earlier, a
touch higher than expectations of 7.3%, but below growth of 7.7% in
the final quarter of last year.
The news also gave Wall Street shares a boost, with the S&P
500 up 0.7% as European markets closed.
"The reported economic slowdown in China in the first quarter
wasn't as sharp as some had feared," said Lee Hardman, a currency
analyst at Bank of Tokyo-Mitsubishi in London.
The China gross domestic product news helped investors to brush
aside developments in Ukraine, where the military fired its first
shots Tuesday in the fight to regain control of the restive east of
the country from pro-Russian separatists.
The Russian ruble was slightly stronger Wednesday despite the
developments, while the RTS stock index gained 1.0%.
Ukraine's currency, the hryvnia, continued to gain ground, after
Monday's three-percentage-point rate rise by the country's central
bank. Most recently, the hryvnia was quoted at 11.25 against the
dollar, up more than 10% from its record low on Monday.
"Developments in Ukraine and Russia haven't been a key driver of
price action recently as the market takes a wait-and-see approach
and seems to view any major ramifications as more of a tail risk
than front and center," said analysts at Rabobank.
"That said, this could turn very quickly and it could be argued
that the market is being somewhat complacent," they added.
In commodities markets, gold was down 0.2% at $1,300.50 a troy
ounce, and Brent crude oil was 0.3% higher at $109.71 a barrel.
Meanwhile, sterling jumped 0.5% against the dollar to trade at
$1.6820, the highest since mid-February. The catalyst was an
unexpectedly sharp drop in U.K. unemployment to 6.9%, below the 7%
threshold at which the BOE has previously said it would begin
considering a rise in interest rates.
U.K. government debt declined, as investors factored in the
possibility of a sooner-than-expected rate rise. The yield on
10-year bonds, which rises as prices fall, climbed 0.05 percentage
point to 2.64%.
Even so, the strength of the labor market is very unlikely to
trigger immediate action from the central bank. In March, BOE
Governor Mark Carney backed away from his focus on the unemployment
rate, saying rate setters have started looking at a broader range
of labor market and other economic indicators.
In corporate news, shares in Credit Suisse Group AG fell after
the Swiss bank delivered a disappointing profit figure for the
first quarter of 859 million Swiss francs ($975.47 million), down
from the 1.3 billion francs for the year-earlier period.
Tesco PLC shares rose despite the U.K. retailer posting its
second consecutive fall in full-year profit. For the year to Feb.
22, Tesco's trading profit--which excludes property gains or
losses--fell to GBP3.31 billion ($5.54 billion) from GBP3.45
billion a year earlier, on sales that were largely flat at GBP70.89
billion
Write to Tommy Stubbington at tommy.stubbington@wsj.com and
Clare Connaghan at clare.connaghan@wsj.com