Strong US data lead stock markets higher

The US and European stock markets bounced back sharply yesterday after much better-than-expected US data helped ease concerns the economic recovery could falter and threaten recent sustained gains.

Dealers said heavy losses of more than 2.5 per cent on Wall Street on Friday first drove the Asian markets down sharply yesterday and made for a hesitant start in Europe.

News over the weekend that CIT, a US bank specialising in loans to small companies, had opted for bankruptcy added to the negative tone by stoking fears that the financial sector still faced huge problems.

However, a surprise return to profit for Ford Motor and then news that US manufacturers increased output well above forecasts gave Wall Street a sharp opening boost, pulling European markets higher in its wake.

A strong reading for construction spending was an added bonus, encouraging investors to look for bargains after last week's heavy sell off.

On Wall Street, the blue-chip Dow Jones Industrial Average was up 1.19 per cent at 9,828.59 points around 1700 GMT.

In London, the FTSE 100 index of leading shares closed up 1.19 per cent to 5,104.50 points. In Paris, the CAC 40 gained 0.88 per cent to 3,639.46 points while in Frankfurt, the DAX added 0.29 per cent to 5,430.82 points.

Elsewhere in Europe, Amsterdam edged up 0.15 per cent, Brussels rose 0.20 per cent, Madrid gained 0.45 per cent, Milan put on 1.17 per cent and Swiss stocks added 0.09 per cent.

Earlier Monday, Asian markets took mostly heavy losses as investors there took their lead from Friday's dismal Wall Street performance.

In New York, dealers said the economic data and Ford's results helped steady nervous investors who had appeared to be on the verge of a significant pull-back on concerns the markets had got ahead of the fundamentals.

The US manufacturing sector expanded for a third consecutive month in October, with the Institute of Supply Management jumping to 55.7 per cent from 52.6 per cent in September for its best performance since April 2006.

"The jump in the index was driven by production and employment, with both registering significant gains," said ISM survey chief Norbert Ore.

"Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode."

Ford meanwhile reported a third-quarter profit net of $997 million on improvement in its North American business, saying it was on track to become "solidly profitable."