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Earnings lift European shares, crisis keeps euro pinned

Source : REUTERS
Last Updated: Thu, Nov 01, 2012 13:20 hrs

By Marc Jones

LONDON (Reuters) - European shares rose on Thursday, bolstered by relatively robust earnings reports despite economic weakness, while the euro was flat as uncertainty over how the euro zone will handle crises in Spain and Greece dragged on.

The FTSE Eurofirst index of top European shares was up 0.7 percent at 1245 GMT, helped by a smaller than expected fall in profits at oil major Royal Dutch Shell and a broker upgrade of Asia-exposed luxury goods giant Richemont.

Although many companies have posted weak third-quarter results over the last month as firms grapple with the faltering global economy, many of the results have not been as bad as some had expected.

World stocks - which have dropped over 3 percent since a rally driven by global central bank stimulus plans ended in mid-September - recovered from earlier falls in Asian trading to stand up 0.1 percent at 329.4 points.

U.S. stock futures were also up 0.1 percent, suggesting a cautious opening on Wall Street, which resumed trading on Wednesday following its first weather-related two-day closure since the late 19th century.

Data from China showing its economy is finally regaining traction and manufacturing growth in Indonesia, India and Taiwan also helped to support investors' sentiment.

But it was contrasted by weak Swedish data as factory activity fell at its fastest rate in over 3 years, and by numbers showing a worse-than-expected deterioration in Britain's manufacturing sector.

"Divergence between the more positive growth signs coming from Asia and the negative news from Europe continues to grow," FX strategists at Morgan Stanley said note. "The economic news from Europe remains negative and is likely to continue to weigh on the euro in the near term."

EURO PINNED

Euro zone finance ministers held a teleconference on Wednesday without any breakthrough on helping Greece, which served notice that it will overshoot its deficit and debt targets again next year because of a deeper-than-forecast recession.

Eurogroup chairman Jean-Claude Juncker said he expected finance ministers to agree a deal on November 12 provided Athens had completed a list of prior actions.

The lack of firm progress, and with no sign that Spain is about to ask for euro zone help, kept the euro pinned in its recent $1.28-$1.32 range, flat at $1.2956.

European government bond markets were also steady with benchmark German Bund futures barely changed at 141.57.

The dollar strengthened gaining 0.4 percent against the yen to 80.04, approaching a four-month high of 80.38 hit last week. The China-sensitive Australian dollar steadied around $1.0366.

Many major currencies have been kept in tight ranges by the uncertainty over Greece and Spain, the tight race for the U.S. presidential election on November 6 and the potential for the United States to run over a debt "cliff" early next year.

U.S. Congress must deal with the fiscal cliff - up to $600 billion in expiring tax cuts and spending reductions that are set to kick in next year - which threatens to hurt the U.S. economy.

U.S. DATA

There will also be plenty of U.S. data on tap for investors to digest later.

The ISM manufacturing index will be closely watched after recent disappointing Midwestern data, while car sales and weekly unemployment figures will also be in focus before Friday's non-farm payroll numbers.

Away from stocks, investor risk appetite was mixed, with commodities such as copper up 0.9 percent, lifted by the data signalling China is perking up.

Oil hovered around $108.26 a barrel as investors focused on the possible effect on fuel demand from the damage caused by the Sandy superstorm along the U.S. East Coast.

"Many refineries are still out or with low runs so a build in crude oil inventories is expected next week and a draw on diesel, heating oil with gasoline moving sideways because no cars are moving," said Michael Poulsen, oil analyst at Global Risk Management in Copenhagen.

(Additional reporting by Julia Payne; editing by David Stamp)



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