Encouraging Factory Data Lift European Shares

Markets Reuters

European shares and the euro strengthened on Tuesday as investors welcomed a steady improvement in the region's economic outlook, while Australia cut interest rates to ease the impact of an end to its mining boom.

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Strong growth in factory output in Germany, Europe's largest economy, and in Britain, the euro zone's biggest trade partner, in June extended a run of recent upbeat data which points to an early end to the currency bloc's 18-month recession.

"It's all about how quickly we exit this recession. The market is pricing in that it is going to be Q3," said Alistair Cotton, senior FX analyst at Currencies Direct.

The data put European shares on course for a seventh straight day of gains as they rose 0.25 percent, while the UK's FTSE 100 index was flat, erasing early losses.

U.S. stock futures signalled a mixed start on Wall Street where share prices are hovering just below record highs as investors await clues on the Federal Reserve's next policy move.

In the currency markets both the British pound and the euro reversed early weakness to gain on the dollar, with sterling adding 0.15 percent to $1.5378 and the single currency edging up 0.2 percent to $1.3290.

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Germany said industrial orders at its factories surged by a surprisingly strong 3.8 percent in June, their largest rise since October as contracts for big-ticket items jumped and euro zone demand rebounded.

Britain's manufacturers reported their biggest annual rise in overall industrial production for over two years, adding to growth already seen in service sector activity, the housing market and in retail sales.

"The broad-based improvement seems to suggest that the current improvement in activity has good foundations and further progress is likely in the coming months," Annalisa Piazza, a senior economist at Newedge Strategy, said.

Italy's economy shrank by less than expected in the second quarter, adding to recent signs its slowdown is bottoming out.

German government bond prices eased after the data sending 10-year Bund yields to 1.7 percent while equivalent Italian bond yields fell 2.5 basis points to 4.25 percent

The better tone in European equities bucked an earlier trend in Asia where MSCI's Asia-Pacific ex-Japan index fell 0.5 percent to hit a two-week low and post the first loss in four days.

However, stocks in Tokyo had ended up 1 percent after a Reuters report that a massive Japanese pension fund for government workers was considering increasing its allocation mix to buy more stocks.

AUSTRALIA CUTS

The main focus of the Asian session was the Reserve Bank of Australia's decision to cut interest rates by 25 basis points, and refrain from any guidance on further policy moves.

The move had been widely expected and some traders were disappointed by the absence of any statement on more rate cuts, leaving the local dollar up some 0.6 percent against the greenback at $0.8982.

"The bounce in the Aussie is unlikely to last," said Neil Mellor, currency strategist at Bank of New York Mellon. The RBA has said it expects a further decline in the currency."

In commodity markets, copper added 1.1 percent to around $7,056 a tonne after a 0.4 percent decline on Monday, while gold fell 1.2 percent, extending a 0.6 percent drop in the previous session to be not far from a two-week low of $1,282.69 hit on Friday.

Brent crude prices recovered to trade above $109 a barrel on rising Middle East tension after the United States told U.S. citizens to leave Yemen immediately. It was on course to snap two days of losses.