Chinese easing hopes shore up markets; Italian bond auction goes smoothly despite downgrade

LONDON - Stock markets brushed off a soft U.S. consumer confidence report and financial problems at JPMorgan Chase to trade higher Friday amid hopes of a further monetary stimulus in China and a relatively well-received bond auction in Italy.

Markets have been buoyant all day, ever since figures showed that China's economy grew by 7.6 percent in the second quarter from the same period the year before. Though that was down on the 8.1 percent recorded in the previous three-month period, it was more or less in line with market expectations and better than some of the markets' worst fears in recent days.

A slowdown in the Chinese economy is one of the main risks stalking the global economy, alongside Europe's debt crisis and the state of the U.S. economy. Booming Chinese growth over the past few years was one of the reasons why the world economy recovered from recession, albeit fairly anemically.

In recent weeks, the Chinese authorities have cut interest rates, lowered banks' reserve requirements to encourage lending and increased spend on infrastructure projects. More is now expected

"As with most China data, there is plenty for both optimists and pessimists; the former expect that China will now ease policy yet further, while the latter argue that this giant economy is still headed for a `hard landing', with growth slowing markedly as the year continues," said Chris Beauchamp, market analyst at IG Index.

In Europe, the FTSE 100 index of leading British shares closed up 1 percent at 5,666.13 while Germany's DAX rose 2.2 percent to 6,557.10. The CAC-40 in France ended 1.5 percent higher at 3,180.81.

The euro meanwhile was up 0.3 percent at $1.2240, bouncing back from an earlier two-year low of $1.2160.

Europe's single currency has foundered over recent weeks as Europe's debt crisis has veered from one crisis to another. A recent run of strong U.S. data and few signs that the U.S. Federal Reserve is willing to sanction another monetary easing anytime has also buoyed the dollar in recent days.

However, the currency got a boost Friday as Italy executed a smooth bond auction despite Moody's downgrade of the country. Moody's reduced its rating on Italy by a further two notches, which leaves the country's credit ratings just two notches above so-called junk.

Italy sold (EURO)3.5 billion of three-year bonds at an average yield of 4.65 percent. That was sharply lower than the 5.3 percent it had to pay at a similar auction in mid-June when investors were acutely concerned about Greece's general election and the scale of the problems in Spain's banks.

"Italy's bond auction went relatively smoothly, perhaps standing in the way of an even larger drop in the single currency," said Vassili Serebriakov, an analyst at Wells Fargo Bank.

The positive tone in markets continued into the U.S. session even though the University of Michigan monthly survey into consumer confidence failed to meet expectations. Its main index dipped to a 2012 low of 72 in July from 73.2 the previous month. The consensus in the markets was for a modest increase to 73.5.

Big banks were leading Wall Street higher, with JPMorgan doing particularly well as it posted earnings even as it revealed that losses from a derivatives trade had grown to $5.8 billion, nearly triple its original estimate. Wells Fargo also reported strong earnings.

The Dow Jones industrial average was up 1.4 percent at 12,753 while the broader S&P 500 index rose the same rate to 1,353.

Earlier in Asia, Japan's Nikkei 225 index was up 0.1 percent to 8,724.11 while Hong Kong's Hang Seng rose 0.4 percent at 19,094.40.

Oil prices tracked equities higher, with benchmark oil for up 78 cents at $86.86 a barrel in electronic trading on the New York Mercantile Exchange.

Source: http://www.startribune.com/world/162349986.html

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