Friday, July 13, 2012

China data buoys stocks, euro under pressure

LONDON (Reuters) - World stocks and oil rose on Friday after China GDP data soothed worries of a drastic hit to the world's No. 2 economy, while the euro hovered near two-year lows against the dollar after Moody's downgrade of Italy added to pressure on the single currency.

Brent crude oil futures rose $1 to above $102 a barrel after second-quarter Chinese GDP data came in line with expectations, offsetting concerns that a bigger slowdown could undermine fragile global growth.

Fresh attempts by the United States to crack down on Iranian crude exports also helped support Brent.

While the 7.6 percent annual increase data confirms China is growing at the slowest pace in three years, it increases hopes for more stimulus policies.

'China has enough room for stimulation now and that is important for equity markets,' Achim Matzke, European stock indexes analyst at Commerzbank, said. 'China's CPI and PPI is coming down so that gives room for interest rate reduction and that is more important for equity markets going forward.'

Analysts and traders said market sentiment had improved across the commodities complex after Chinese GDP came in. On metal markets, copper, seen as a key growth barometer, saw 3-month futures rallying to a one-week high.

That helped the main world equity index <.MIWD00000PUS> recoup some of the previous session's 1 percent losses, gaining 0.32 percent. The index nevertheless looked set to end the week 1.7 percent down.

On European equities, markets opened stronger with the FTSE Eurofirst 300 index of top shares <.FTEU3> up 0.65 percent at 1030 GMT. Emerging market equities <.MSCIEF> rose 0.82 percent. The China growth data also boosted the Australian dollar, which benefits from growth in its biggest export market.

Wall Street also looked set to a higher open on Friday.

Focus is shifting now to the big U.S. corporate results for the second quarter, with JP Morgan, Wells Fargo and Google reporting results on Friday.

U.S. corporate outlooks are at their most negative in nearly four years and companies that have already reported so far this season have shown lacklustre growth, many of them citing Europe's woes as a prime concern.

ITALY CUT

Despite the surprise two-notch downgrade by Moody's, Italy managed to auction three-year debt at lower borrowing costs, helping the euro hold steady on the day at $1.2202.

The single currency stayed within sight of a two-year trough of $1.2166 hit on trading platform EBS the previous day and was on track for its second straight week of losses. It fell to $1.2181 in the Asian session after Moody's cut.

'The auction was not too bad but the bigger news is the double notch downgrade rather than an auction that has gone okay,' said Derek Halpenny, European head of FX research at Bank of Tokyo Mitsubishi.

'Disappointing economic growth, coupled with fragile investor confidence and high peripheral yields remain ahead for the rest of the year. Our target is for the euro to drift to $1.15 in three to six months time.

The downgrade serves as a potent reminder that despite recent efforts by euro zone policymakers, the single currency bloc and especially its periphery, remain mired in debt. The yield difference between 10-year Italian government bonds and their German equivalent remained at around 480 basis points.

Ten-year Italian government bond yields rose 9 basis points to 6.001 percent.

The Moody's downgrade also boosted appetite for safe-haven German Bunds, with bund futures up 23 ticks to 145.07 compared with 144.84 at Thursday's settlement. Italian BTP futures slipped 64 ticks to 99.24.

(Additional reporting by Sujata Rao, Emelia Sithole-Matarise and Anirban Nag; editing by Philippa Fletcher)



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