European stocks close higher on US jobs report

A much better-than-expected US employment report drove European stock markets higher yesterday as the figures eased investor concerns over the strength of the US recovery, dealers said.

The US economy lost 54,000 jobs in August, well short of forecasts for 120,000, bolstering hopes that the economy will not fall back into recession, as had been feared after sustained bad news last month, they said.

With expectations set low, data this week has largely been positive, suggesting the gloom may have been overdone – although no one can say it will be plain sailing from here, they added.

Making the point, another report showed the US service sector, a key component of the economy, slowing in August to an eight-month low.

In London, the FTSE 100 index of leading shares closed up 1.06 per cent at 5,428.15 points. In Paris, the CAC 40 index added 1.12 per cent at 3,672.20 points and in Frankfurt the DAX rose 0.83 per cent to 6,134.62 points.

Elsewhere in Europe, Amsterdam rose 0.85 per cent, Brussels was up 0.48 per cent, Madrid added 0.59 per cent, Milan gained 1.12 per cent and Swiss stocks put on 1.06 per cent.

On Wall Street, the blue-chip Dow Jones Industrial Average was up 0.71 per cent at around 1605 GMT, with the tech-rich Nasdaq Composite index gaining 0.90 per cent.

Dealers said that the employment report was welcome, showing that if the economy was powering ahead, it was not at risk of going into reverse and that was enough to allow further gains after sustained losses in August.

“In the wake of (Federal Reserve head) Ben Bernanke’s comments last week and recent economic data, this report adds to the notion (the) recovery is slow and tepid but (it) is underway,” said Jason Schenker, president of Prestige Economics.

On the forex market, the euro rose to $1.2884 from $1.2821 in New York late Thursday as the jobs figures encouraged investors to take on more riskier assets such as the single European unit and stocks.

The dollar firmed to ¥84.46 from ¥84.30. Bond prices fell sharply on the data, having risen in recent months as investors bought into the traditionally safer investment than shares on fears of a double-dip recession.

The yield or rate of return on the 10-year US Treasury bond yield jumped to 2.735 per cent in midday trade from 2.628 per cent on Thursday while the 30-year bond rose to 3.835 per cent from 3.726 per cent.

Yields, which have hit record lows on some benchmark bonds, move inversely to prices.

In Paris, Yves Marcais of Global Equities said the US jobs report “confirmed the view in the market since the beginning of the week that the economic data would pick up”.

Mr Marcais noted, however, that the rebound came in very thin volumes, with the market coming back from initial gains on the news of more than two per cent.

The service sector report, meanwhile, was disappointing, he said, adding that the US government faces a problem in keeping the economy on track at a time when it must begin reducing stimulus spending so as to put its own finances on a sounder footing.

Rob Carnell, economist with ING, said the jobs report helped ease concerns over a double-dip recession but the employment situation remains difficult, with job growth still not fast enough to bring down the overall unemployment rate – which rose to 9.6 per cent in August from 9.5 per cent in July.