European stock markets showed solid gains yesterday, with investors showing renewed optimism about the state of the world economy following positive data from Europe and Japan.

News of a reduction in British borrowing costs and a stronger-than-expected gain in eurozone industrial production gave European stocks a boost after Asian stocks firmed on Japanese business confidence figures.

The London FTSE 100 index added 0.74 per cent to 5,202.13 points while in Paris the CAC 40 rose 1.98 percent to 3,626.04 points. The Frankfurt DAX gained 1.28 per cent to close at 6,125.00 points.

Bucking the trend in London was beleaguered British oil giant BP, whose shares plunged more then 10 per cent as investors fretted over the spiralling cost of the Gulf Mexico oil spill crisis and the future of the group's shareholder dividend.

BP finally closed at 355.45 pence, a loss of 9.30 per cent.

US stocks gained ground in early trade as the positive economic news from Europe helped extend a recent uptick.

The Dow Jones Industrial Average was up 1.14 per cent at mid-day at 10,327.53 points while the tech-heavy Nasdaq put on 1.58 per cent to 2,278.94 points.

With little market-moving data in the United States, stronger-than-expected numbers for EU industrial production were enough to power investor sentiment.

Eurozone industrial output jumped 0.8 per cent in April from March, nearly double the gain expected by analysts.

"April's sharp rise in eurozone industrial output indicates that the recovery in the export-sensitive industrial sector has been little affected so far by the region's fiscal woes," said ING analyst Martin van Vliet.

At Briefing.com, analysts noted that "growing optimism continues to support equity markets globally. The rally is being supported by better economic data, indicating the recovery remains on track."

But Yves Marcais of Global Equities in Paris cautioned that while a "tentative rebound in confidence was apparent, the market remains fragile and the US macroeconomic statistics to be released this week will be a test to determine just how solid the recovery is."

Britain meanwhile lowered its economic growth forecast for 2011 to 2.6 per cent from the previous government's 3.25 per cent, along with its estimate of borrowing needs.

The growth revision was offset by a forecast lower deficit - £155 billion in the current financial year to March 2011, down from the previous estimate of £163 billion.

Capital Economics analyst Jonathan Loynes said the lower borrowing forecast would ease the pressure for severe fiscal tightening in an emergency budget expected next week.

In Tokyo, the Nikkei index jumped 1.80 per cent to close at 9,879.85 points as a weaker yen boosted exporters and after a survey showed corporate morale was improving in the world's number two economy.

Confidence in the outlook of large Japanese companies rebounded during the April-June period compared to the previous quarter, a joint survey by the finance ministry and Cabinet office showed.

Elsewhere Hong Kong rose 0.90 per cent. Sydney and Shanghai were closed for public holidays. Meanwhile Moody's rating agency slashed its rating for Greece to speculative investment level yesterday, dropping it four notches from A3 to Ba1 on concerns about how it can repay its debts.

Moody's said that considerable uncertainty about Greek plans, even with the help of an EU-IMF bailout package, to reduce its massive debt and balance its public finances justified the ratings cut.

"This uncertainty represents a risk that leads Moody's to believe that Greece's creditworthiness is now consistent with a Ba1 rating, a rating which incorporates a greater, albeit, low risk of default."

Moody's cut Greece's sovereign rating by one notch from A2 to A3 on April 22, warning then that a review might lead to another reduction.

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