European and US stock markets overcame early losses and traded higher yesterday, helped by positive US confidence data, after Asian exchanges wilted, with Tokyo hit by concerns over a strengthening yen.

Investors in Europe, who shunned equities in initial deals on renewed fears for the US recovery, later took heart from news that US consumer confidence improved unexpectedly in August after two straight months of decline.

In Europe, stock markets recorded modest gains, with the London FTSE index advancing 0.45 per cent to close at 5,225.22 points.

In Paris the CAC 40 rose 0.11 per cent to 3,490.79 points while in Frankfurt the DAX added 0.22 per cent to 5,925.22 points.

There were gains of 0.18 per cent in Milan, 0.29 per cent in Amsterdam and 0.50 per cent in Madrid. The Swiss Market Index ended the day with a loss of 0.39 per cent.

The Conference Board, a business research group, said its confidence index based on a survey of 5,000 US households rose to 53.5 points in August from 51 points in July. Analysts had expected a reading of 50 points.

“This report is far from stellar. It is just less bad than many of the other reports,” said analyst Jon Ogg at 24/7 Wall Street, noting a string of recent negative US economic data.

On Friday, the US government said economic growth slumped to 1.6 per cent in the second quarter from the initial estimate of 2.4 per cent and compared with 3.7 per cent in the first three months of 2010.

The confidence report was nonetheless sufficient to spark a turnaround on Wall Street, where the Dow Jones Industrial Average was up 0.24 per cent by midday at 10,033.98 points after opening lower.

By contrast the tech-heavy Nasdaq composite slipped 0.14 per cent to 2,116.94.

Commenting on the effect of the US news on Europe, economist Yves Marcais of Global Equities said: “As is often the case, there is a session before Wall Street and one after Wall Street.”

But analyst Michael Hewson cautioned that “it is hard to see this (spurt in confidence) as anything other than another bounce in a trading range for equities.”

The confidence data also had an impact on the currency market, where investors were encouraged to seek out assets seen as riskier than the dollar. The European single currency, the euro, rose to $1.2704 from $1.2663 late on Monday.

But both the euro and the dollar weakened against the yen. The euro was at 106.82 yen, down from 107.7, while the dollar fell to 84.07 yen from 84.55.

The steady rise in the yen, despite Bank of Japan action to check the advance, has unnerved officials and investors in Tokyo who see the trend as a threat to Japanese exports and ultimately to the struggling economy.

Those fears made themselves felt in Asian trading yesterday, when Tokyo’s Nikkei index plunged 3.55 per cent to 8,824.06 points, its lowest closing level since April 2009. There were declines of 1.09 per cent in Sydney, 0.97 per cent in Hong Kong and 0.52 per cent in Shanghai.

The slide came despite the announcement by the government on Monday of an $11-billion package of additional stimulus measures aimed at kickstarting growth.

Hours later the Bank of Japan disclosed a fresh batch of monetary easing measures to tame the soaring yen, but traders were unimpressed and bought into the safe-haven unit, sending it up against the dollar and euro.

“It would appear that market reaction to the BoJ’s extra stimulus has merely served to reinforce the perception of Central Bank impotence in the face of deteriorating economic conditions, thus fuelling risk aversion and equity market sell-offs,” said Mr Hewson.

On the bond market, the yield on the 10-year German Bund fell to a record low 2.112 per cent from 2.131 per cent on Monday as nervous investors – despite the positive showing on most stock markets – put their money in assets seen as more reliable than equities.

The 10-year Irish bond in contrast saw its yield rise to 5.563 per cent from 5.522 on Monday after bailed-out subsidised Anglo-Irish bank reported the largest first-half loss in Irish corporate history.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.