European stock markets closed sharply higher yesterday, overcoming a bout of nerves as investors waited to hear more testimony on the US economy from Federal Reserve Chairman Ben Bernanke.
Dealers said that after modest losses last Tuesday, markets adjusted back but then picked up on early gains after some better-than-expected US corporate results and housing starts data.
In London, the benchmark FTSE 100 index of top companies closed up one per cent at 5,685.77 points. In Frankfurt, the DAX 30 gained 1.62 per cent to 6,684.42 points and in Paris the CAC 40 jumped 1.84 per cent to 3,235.40 points.
Madrid rose 0.50 per cent despite news of rising bad loans at its struggling banks while Milan put on 0.43 per cent.
The European single currency was lower at $1.2268 from $1.2292 in New York late on Tuesday.
Calls by the International Monetary Fund for the European Central Bank to take on a more active role in resolving the eurozone debt crisis and the setting up of a comprehensive banking union appeared to have little impact.
The eurozone’s problems were highlighted again when Germany sold two-year bonds at negative rates of interest and Chancellor Angela Merkel said she was “optimistic” but could not be certain that the “European project” would work.
After a weak start, Wall Street reversed direction to post solid gains, helping the European markets move ahead sharply in late trade.
New York reversed early losses as investors waited on Bernanke’s second day of Congressional testimony in the hope he would point to some form of new economic stimulus.
The blue-chip Dow Jones Industrial Average was up 0.67 per cent at around 5.50 p.m. while the tech-rich Nasdaq gained 1.06 per cent.
Bernanke gave no clear signal that additional stimulus was on the way in his testimony to Senate lawmakers on Tuesday but stocks rallied on hopes that it would materialise at some point.
June housing data were mixed but investors opted to follow the starts number, up 6.9 per cent from May, while building permits, a forward-looking indicator, fell 3.7 per cent.
In London, Ishaq Siddiqi, an analyst at ETX Capital trading group said investors were hoping for a lead from Bernanke after some disappointment on Tuesday with his gloomy appraisal of the economic outlook.
Bernanke conceded that US economic data had been “disappointing” and that a future reduction in unemployment would likely prove “frustratingly slow”.
He also forecast slower growth for this year and next and painted a future replete with pitfalls both domestic and from Europe.
In company news, London-based HSBC came off its lows to show a loss of just 0.31 per cent after a top executive resigned over the banking giant’s failure to control money laundering and terrorist financing, especially in the Americas.
Europe’s biggest bank apologised on Tuesday for failing to apply anti-laundering rules as US lawmakers accused it of giving Iran, terrorists and drug dealers access to the US financial system.
In Asian trade earlier yesterday, Tokyo fell 0.32 per cent, Hong Kong was down 1.11 per cent but Shanghai rose 0.37 per cent. Sydney shed 0.42 per cent.