By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- Europe's benchmark stock index extended
gains into a sixth straight session on Monday after a raft of
upbeat global business-activity figures, although the encouraging
data further fueled fears of a reduction in central-bank
easing.
The Stoxx Europe 600 index closed up 0.2% to 304.74, its highest
level since late May.
"I think a lot of the good news has already been built in. And
secondly it's almost a negative effect from the strong data because
it's confirmation that central banks need to find the [easing]
exit. They can't keep policy loose forever," said Victoria Clarke,
economist at Investec Securities.
Some of the biggest gains in the pan-European index came on the
back of broker upgrades. Shares of Mediaset SpA climbed 4% after
Deutsche Bank lifted the Italian broadcaster to buy from hold.
Shares of Thomas Cook Group PLC added 5.5% after Citigroup
lifted the travel agency to buy from neutral, while Drax Group PLC
rose 2.9% as Goldman Sachs lifted the utility firm to buy and added
it to the conviction list.
On a more downbeat note, shares of Akzo Nobel NV (AKZOY) dropped
1.1% after Berenberg cut the paints and coatings firm to sell from
hold.
Also on the decline in Europe, shares of heavyweight bank HSBC
(HBC) dropped 4.4% after the bank reported a 23% rise in first-half
net profit, but fell short of analyst expectations. Meanwhile,
revenue fell 7%.
Global PMI surprises
More broadly, investors in Europe digested the region's final
purchasing managers' indexes for July, released Monday. The
composite index for the euro zone rose to 50.5, above a preliminary
reading of 50.4 and better than June's 48.7. The July reading
marked the first time since January 2012 the index has climbed
above the 50 level that separates expansion from contraction.
PMI data were also in the spotlight in the U.K., where the
Markit/CIPS headline business-activity index rose to a more than
61/2-year high of 60.2 in July, up from 56.9 in June and beating
expectations. See: U.K. economy revs up from 'zero to hero'
In the U.S., the Institute for Supply Management's service index
jumped to 56% in July from 52.2% in June, marking the highest level
since February. The data followed a mixed jobs report from Friday,
when the labor department said 162,000 jobs were created in July,
below analyst expectations, while the unemployment rate fell to
7.4%, the lowest level since the end of 2008.
Investors have been closely tracking U.S. data recently to gauge
if they strengthen or weaken the case for the Federal Reserve to
reduce its asset purchases in coming months. U.S. Federal Reserve
Chairman Ben Bernanke has on several occasions stressed that the
tapering process is dependent on an improvement in data.
"The U.S. services sector is one of the key drivers for the
recovery in the country so traders believe it is essential we
continue to see growth in that sector," said Ishaq Siddiqi, market
strategist at ETX Capital, in a note.
"At the same time, despite the ISM services report being much
stronger than expected, when put in contrast with the mixed nonfarm
payrolls out last Friday, markets are left none-the-wiser to the
Fed's plans of tapering QE," he added.
U.S. stocks traded mostly lower on Wall Street.
Indexes and movers
The positive readings also failed to send all the
country-specific indexes higher in Europe. FTSE 100 index closed
0.4% lower at 6,619.58 as the HSBC shares added pressure.
On the rise in London, however, Lloyds Banking Group PLC (LYG)
climbed 2.7% after the Financial Times reported that the bank aims
of its earnings in dividends by about 2015. A representative from
Lloyds was not immediately available to comment.
Elsewhere in Europe, Germany's DAX 30 index slipped 0.1% to
8,398.38, with shares of K+S AG off 7.5%. The potash maker has been
mired in the red four of the past five trading sessions, after one
of the world's largest potash producers last week cut its outlook
for prices this year.
France's CAC 40 index closed 0.1% higher at 4,049.97.
Shares of Veolia Environnement SA gained 3.4% in Paris, after
the waste and water firm said adjusted operating profit rose 28% in
the first half to 539 million euros ($716 million).
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