The Associated Press
LONDON (AP) - European stocks recouped most of their losses Friday as Wall Street eked out modest gains on news that the U.S. economy contracted by less than anticipated in the second quarter. Profit-taking associated with the month-end kept the buying in check, though.
By mid afternoon London time, the FTSE 100 index of leading British shares was up 8.6 points, or 0.2 percent, at 4,640.21 while Germany's DAX fell a minuscule 1.84 points to 5,358.82. The CAC-40 in France was 10.32 points, or 0.3 percent, lower at 3,425.17.
On Wall Street, the Dow Jones industrial average was up 21.31 points, or 0.2 percent, at 9,175.77 soon after the open while the broader Standard&Poor's 500 index rose 2.24 points, or 0.2 percent, to 988.99.
The modest gains in the U.S. came after figures showed that the world's largest economy contracted at an annualized rate of 1 percent, less than the 1.5 percent predicted in markets and the 6.4 percent annualized drop recorded in the first three months of the year. The improvement was largely due to an improvement in exports, a spike in government spending associated with President Barack Obama's stimulus package and a slower liquidation of inventory levels.
Analysts said the clear improvement in the U.S. economy could well support stocks in the near future, as it provided clear evidence that the world's largest economy may start to grow by the end of the year. However, they noted that the end of the month was complicating trading ‚Äî investors often use the month-end to book any profits accumulated.
"The figures…may well set the tone for the next few weeks on the equity markets," said David Jones, chief market strategist at IG Index.
Stock markets around the world enjoyed hefty gains over the previous 24 hours as investors warmed to a string of positive earnings reports around the world thatfueled hopes that the worst of the global recession was over and that companies were positioning themselves for an imminent upturn.
Stocks have rallied for much of July, with many of the world's leading indexes hitting their highest levels this year, on mounting optimism about the outlook for the world economy after a large chunk of the corporate earnings released have outperformed market expectations.
Instead of being driven by psychological factors such as fear, there are hints that investors have begun to look at the traditional fundamental factors - how much is a company earning and when will economies around the world start to grow.
"Policymakers have helped reduce systemic risk in the financial system and investors can focus more on the traditional concerns of economic data flow and earnings potential," said Neil Mackinnon, chief economist at ECU Group.
Earnings releases so far Friday have been fairly mixed.
French retail and luxury company PPR SA posted better than expected earnings and saw its share price jump 9.4 percent in early trading while shares in building materials firm Lafarge SA slipped 1.6 percent after lowering its outlook for 2009 cement sales.
Meanwhile, British Airways PLC managed to be the biggest riser on the FTSE 100 -up nearly 6 percent - even though it posted a 94 million pound ($155.5 million) quarterly loss, its first since being privatized in 1987, and warned of "no visible signs of improvement" in the recession-hit airline industry. Analysts said investors gave the company the benefit of the doubt as they focused on its ongoing cost-cutting and debt reduction measures.
Earlier, every major Asian market turned higher with Japan's Nikkei 225 stock average gaining 191.62 points, or 1.9 percent, 10,356.83. Investors were seemingly unfazed by news the country's unemployment rate hit a six-year high in June of 5.4 percent, threatening to stall a recovery in the world's second-biggest economy.
Chinese shares continued to recover after tanking Wednesday amid fears the government would constrict liquidity. The Shanghai benchmark jumped 2.7 percent to 3,412.06. Hong Kong's Hang Seng added 1.7 percent to 20,573.33.
Oil prices continued to be volatile after big losses Wednesday were more or less recouped in the following session. Benchmark crude for September delivery dropped $1.04 to $65.90.
The dollar was down 0.1 percent at 95.45 yen while the euro rose 0.6 percent to $1.4143.
AP business Writer Jeremiah Marquez in Hong Kong contributed to this report.