European stock markets closed higher yesterday as better-than-expected US jobs data helped offset persistent concerns over how and when the eurozone debt crisis can be resolved.

Dealers said there was a muted response to the European Central Bank’s hike in its key interest rate by 0.25 points to 1.50 per cent and the Bank of England’s decision to sit tight at 0.50 per cent, with both moves as expected.

However, an ADP survey showing that the US private sector created 157,000 jobs in June, after a gain of 36,000 in May, gave Wall Street a solid boost, helping European markets move higher in the afternoon.

A fall in new US jobless claims was also welcome after recent weak data, with analysts now suggesting the economy could be over a soft patch sparked by the massive Japanese earthquake in March which disrupted international supply chains.

The euro was slightly firmer, supported by the ECB rate hike after sharp falls following a drastic Moody’s ratings downgrade to junk status for Portugal on Tuesday which stoked fears the eurozone debt crisis still has a long way to go.

In London, the benchmark FTSE 100 index of top shares closed up 0.86 per cent at 6,054.55 points. In Frankfurt, the DAX rose 0.54 per cent to 7,471.44 points and in Paris the CAC 40 gained 0.47 per cent to 3,979.96 points.

Other European markets were firmer but Madrid and Milan slipped, reflecting investor nervousness over the state of Spanish and Italian public finances.

“It’s all about interest rate decisions,” said Capital Spreads analyst Simon Denham.

In late London trade, the euro was higher at $1.4360 from $1.4314 late Wednesday in New York while the dollar rose to 81.23 yen from 80.88 yen.

Dealers said the markets took positively remarks by ECB head Jean-Claude Trichet on the need to avoid a Greek default at all costs and its decision to ensure Portuguese banks have access to funding.

Mr Trichet was critical of the credit ratings agencies, criticising the dominance of the major firms – Fitch, Moody’s and Standard and Poor’s.

Michael Hewson at CMC Markets said the ECB move on the Portuguese banks effectively ratcheted “up the war between the ratings agencies and European policymakers.”

Kathleen Brooks at Forex.com said the ECB’s reasoning on its rake hike suggested “that if inflation remains elevated, it will continue its policy of interest rate normalisation, even if peripheral (eurozone country) concerns continue to rage on.”

In New York, the US jobs data gave stocks a strong start, with the blue-chip Dow Jones Industrial Average up 0.72 per cent at around 1615 GMT while the tech-heavy Nasdaq Composite put on 1.32 per cent.

“Today’s reports on weekly jobless claims and ADP payrolls data could provide additional fuel for the bulls, who seem willing to rally on any upbeat news,” said Sarah Wasserman, an analyst with Schaeffer’s Investment Research.

The figures set up the markets for the US government’s own employment report due today, one of the most closely watched indicators for the world’s largest economy, with dealers hoping for more good news.

In Asian trade earlier yesterday, Tokyo fell 0.11 per cent, Shanghai was flat and Hong Kong rose 0.52 per cent.

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