By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets advanced on
Friday after data confirmed that the German and U.K. economies are
on track for a sustainable recovery and consumer-confidence figures
for the euro zone beat expectations.
The Stoxx Europe 600 index gained 0.4% to close at 304.71, after
posting the biggest one-day gain in three weeks on Thursday.
The index, however, spent most of the week mired in the red,
closing with a 0.5% weekly loss, as investors worried about a
reduction in monetary stimulus in the U.S.
Among biggest advancers in the index on Friday, shares of
FLSmidth AS (FLIDY) rallied 9.8% after the engineering group said
it would cut 1,100 jobs after reporting a drop in second-quarter
operating profit.
Shares of Croda International PLC climbed 4.3% after Deutsche
Bank lifted its view on the chemicals firm to buy from hold.
In the same vein, ING Groep NV added 2.4% after Morgan Stanley
lifted its recommendation on the stock to overweight from equal
weight.
Signs of euro-zone recovery
More broadly, investors cheered recent upbeat data from the euro
zone. Consumer confidence in the region improved to -15.6 in August
from -17.4 in July, beating expectations of a -16.7 reading,
according to FactSet estimates.
In Germany, data on Friday showed the country's economy expanded
by 0.7% in the second quarter, confirming official estimates
released last week.
And in the U.K., data showed the economy grew faster than first
estimated in the second quarter. The Office for National Statistics
said GDP expanded by 0.7%, better than the first estimate of 0.6%
growth.
On Thursday, the euro zone's composite purchasing managers'
index rose to a 26-month high in August.
The upbeat readings helped most of Europe's equity indexes to
close in positive territory on Friday. The U.K.'s FTSE 100 index
rose 0.7% to 6,492.10, helped higher by resource firms. The index
closed out the week 0.1% lower.
Germany's DAX 30 index added 0.2% to 8,416.99, gaining 0.3% on
the week, while France's CAC 40 index picked up 0.3% to 4,069.47
and trimmed its weekly loss to 1.3%.
The largest European ETF, the Vanguard FTSE Europe ETF (VGK),
has been trading sideways near a two-year high in past weeks, but
hasn't made the breakout that many chart like to see.
"The PMIs are reassuring and give us confidence that the euro
area is heading into a recovery. We will continue to look at data
to see if this will hold out including the German Ifo next week,"
said Victoria Clarke, economist at Investec Securities.
"But it's still early days and some of the good readings may be
weather related and we need to keep sight of the fact that it may
have lifted the recent figures a bit," she said.
And even if the macroeconomic data have started to paint a
rosier picture of the European economy, there is still the risk
that politics could send the region back into turmoil, Clarke
said.
"We have German and Austrian elections coming up and have
started to hear talks about Greece needing a third bailout. Once
the politics get into play later this year, it could take some of
the shine off the better sentiment we've seen," she said.
The encouraging data have also been noticed by the European
Central Bank and filtered into the discussion about further rate
cuts.
Member of the European Central Bank's governing council Ewald
Nowotny said late Thursday that there will be no need for another
rate cut after the recent stream of upbeat data from the euro area,
according to Bloomberg.
Fed tapering and Europe movers
Investors also continued to speculate when the U.S. Federal
Reserve will taper its $85-billion-a-month asset purchases. Fears
that the central bank could begin scaling back its easing program
as soon as September hit the markets earlier in the week, with the
10-year U.S. Treasury note (10_YEAR) climbing to its highest level
since July 2011.
Atlanta Fed Bank President Dennis Lockhart said on Friday he
would back a September taper of the central bank's asset purchase
plan as long as data between now and the meeting show the economy
on a steady growth path.
Data out on Friday showed sales of new homes dropped 13.4% to a
seasonally adjusted annual rate of 394,000 in July, the lowest rate
since October.
"There seemed to be no obvious factor that would suggest this
weakening so the data will put more of a question mark over the Fed
meeting in September. The question is whether the Fed will be
worried if the higher mortgage rates play into the housing market,"
Clarke from Investec Securities said.
U.S. stocks traded higher on Wall Street.
Back in Europe, oil firms rose, after the price for crude oil
(CLV3) broke above $106 a barrel. Shares Eni SpA climbed 2.3% in
Milan, Total SA (TOT) added 1.9% in Paris and BP PLC (BP) put on
1.4%.
Yara International ASA fell 2.8% after Deutsche Bank cut the
Norwegian fertilizer firm to sell from hold.
Nobel Biocare Services AG gave up 3.7% after Standard &
Poor's Ratings Services cut the Swiss firm to sell from hold.
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