By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets climbed to an
almost eight-week high on Wednesday after better-than-expected
purchasing managers' indexes from the region spurred hopes about an
economic recovery.
The Stoxx Europe 600 index added 0.6% to 301.10, closing at the
highest level since late May.
"It seems like a nice tactical move to play the euro zone at the
moment. There's a good benefit from the stronger euro and quite
decent market performance. But ultimately investors will be quite
cautious on the region in the medium term," said Guy Foster, head
of portfolio strategy at Brewin Dolphin.
"We're still talking about unemployment above 12% in the euro
zone and that won't be tolerated for a long time. We can certainly
hope -- we are quite optimistic -- that unemployment won't worsen
from these levels."
"But the underlying trend is one in which valuations still
overwhelmingly favor equities. If the earnings season turn out a
bit better than expected and we see more topline growth in the euro
zone that would be quite encouraging for investors," he added.
Earnings were also in the spotlight on Wednesday, with several
firms posting solid gains after releasing results.
Shares of easyJet PLC added 3.7% after the budget airline said
third-quarter revenue grew by 10.5%.
Shares of truck maker Volvo AB added 5% after the Swedish firm
repeated its forecast for demand for heavy-duty trucks in Europe
and said order intake continued at a high level in the second
quarter.
Upbeat PMIs
More broadly, investors digested the preliminary PMI releases
from France, Germany and the euro zone, all coming in slightly
better than anticipated. The composite euro-zone index climbed to
an 18-month high of 50.4 in July from 48.7 in June, moving above
the 50-mark that separates expansion from contraction. The
consensus estimate ahead of the data was 49.3, according to
FactSet. Read: With PMIs at 18-month high, euro zone poised to
emerge from recession
Analysts at Société Générale called the reading "impressive" by
all standards and said "it seems that PMIs indexes were too low
during the spring when compared with hard data and that business
sentiment has been catching up for the last three months."
"This suggests that executives' sentiment probably overreacted
to political and fiscal uncertainties in the first half of the
year," the added.
In Germany, the composite index climbed to a five-month high of
52.8, while France's similar poll moved up to a 17-month high at
48.8.
Germany's DAX 30 index rose 0.8% to 8,379.11, while France's CAC
40 index added 1% to 3,962.75.
The U.K.'s FTSE 100 index gained 0.4% to 6,620.43.
PMIs were also in focus in China on Wednesday, although not as
optimistic. The "flash" version of HSBC's Chinese manufacturing PMI
dropped to 47.7, an 11-month low. Chinese stocks closed lower.
European stock markets pared gains in the afternoon as U.S.
stocks drifted lower after the open as investors digested earnings
from Boeing Co. (BA), Apple Inc. and Caterpillar Inc. (CAT).
Movers
Spanish banks were among biggest advancers in Europe on
Wednesday, as analysts at Citigroup lifted the price targets of
most of the country's major banks. Shares of BBVA SA (BBVA) gained
2.7%, Banco Santander SA (SAN) picked up 2.5% and Banco Popular
Español SA climbed 5.5%. The IBEX 35 index closed 1.5% higher at
8,192.50.
Among other notable movers, Daimler AG rose 1.4% after the car
maker said profit almost doubled in the second quarter.
Shares of Kingfisher PLC put on 3.1% after the home-improvement
retailer said comparable sales rose 2.5% in the 10 weeks to July
13.
On a more downbeat note, shares of Syngenta AG lost 4% after the
chemicals firm reported a drop in first-half earnings per
share.
Tod's SpA dropped 3.9% after UBS cut the luxury-goods firm to
sell from neutral, citing an outlook for below sector-average
earnings growth over the next three years.
Shares of STMicroelectronics shaved off 3.2% after Bank of
America Merrill Lynch cut the chip maker to underperform from
buy.
Another chip maker, ARM Holdings PLC (ARMHY) lost 1.1% after
posting a drop in first-half profit although revenue rose 27%.
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