European stocks close firmer despite weak US data
European stock markets closed higher yesterday as investors found positives in weaker-than-expected US headline growth data, offsetting record Spanish jobless figures that stoked concerns on the eurozone.
US growth slowed sharply to 2.2 per cent in the first quarter from three per cent in the last three months of 2011 but consumer demand held up strongly, suggesting there was some underlying strength, dealers said.
They said that was enough for Wall Street to stage modest gains, supporting Europe after Spanish unemployment hit a record 24.4 per cent and Standard and Poor’s slashed the country’s rating by two notches.
London’s benchmark FTSE 100 index of top companies closed up 0.49 per cent to 5,777.11 points. In Frankfurt, the DAX 30 gained 0.91 per cent to 6,801.32 points and in Paris the CAC 40 advanced 1.14 per cent to 3,226.27 points.
Madrid, down sharply by 2.65 per cent at the open following the S&P downgrade, confounded the gloomy jobless news to show a gain of 1.69 per cent. Milan too posted strong gains, up 1.85 per cent, despite the problems in Spain which are often lumped together with Italy’s.
In foreign exchange deals, the euro picked up to $1.3252 from $1.3240 in New York late on Thursday.
In New York, stocks were firmer despite the bad news leads, with the blue-chip Dow Jones Industrial Average up 0.15 per cent at around 1550 GMT, while the S&P 500-stock index advanced 0.27 per cent and the tech-laden Nasdaq rose 0.42 per cent.
Spanish 10-year government bond yields – or the rate investors demand in return for handing over their money – briefly topped the psychological six-per cent level, before pulling back, reflecting the concerns over Madrid.
Investors are anxious that the eurozone debt crisis, which has already resulted in vast international bailouts for Ireland, Greece and Portugal, could now sink Madrid, dealers said.
“The rain in Spain is falling mainly on the banks ... and there are dark clouds over the Spanish economy generally,” VTB Capital economist Neil MacKinnon said.
Standard and Poor’s downgraded Spain’s sovereign credit rating to BBB-plus and added a negative outlook, warning of recession this year and next, making it even harder to meet deficit-cutting targets.
At the same time, the government was increasingly likely to have to pump in funds to help banks, many of which are still burdened by non-performing loans extended during the property bubble, S&P said.