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While you were sleeping: Stocks hold on to gains

Tuesday 7th September 2010

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Stocks in Europe gained for the fourth time in five sessions amid further signs that the global economic recovery was on track.

UK factory production increased at a record pace in the third quarter on surging export demand, according to Engineering Employers Federation data, released today.

The data further cemented optimism sparked by last week’s reports showing improving growth in US and Chinese manufacturing and accelerated hiring by companies in the world’s largest economy.

The Stoxx Europe 600 Index advanced 0.2% to 260.94. US markets were closed for the Labor Day holiday.

“After a string of disappointing numbers, the data last week provided an element of stability and helped increase risk appetite,” Henk Potts, equity strategist at Barclays Wealth, told Reuters.

“When you couple that with the outlook for corporates, it looks pretty good.”

The UK’s FTSE 100 rose 0.20%, France’s CAC 40 gained 0.34% and Germany’s DAX advanced 0.33%. National benchmark indexes advanced in all of the 18 western European markets, except Denmark.

Among the most active stocks in Europe were GN Store Nord A/S, E.ON AG and RWE AG.

European Central Bank Governing Council member Ewald Nowotny said a decision on how to withdraw emergency liquidity measures wouldn’t be made until late this year.

“We certainly won’t discuss the first quarter before December of this year” Nowotny told Bloomberg News in an interview in Bucharest today.

“We’re still facing an economic development with a very high uncertainty in many respects. It’s certainly too early to take a clear position.”

Last week, Europe’s central bank extended emergency measures for banks into 2011.

There is still plenty of concern. Greece still faces a “substantial” default risk, Pacific Investment Management Co fund manager Andrew Bosomworth said.

“Greece is insolvent,” Bosomworth, Munich-based head of portfolio management at Pimco, which oversees the world’s largest bond fund, told Bloomberg today.

Donald Kohn, who retired as vice chairman of the US Federal Reserve on September 1, told the New York Times in an interview published Monday the economy was in "a slow slog out of a very deep hole".

Kohn also said the Fed should take additional measures if a recovery continued to be slow.

While the latest economic data offered renewed hope for the US outlook, President Barack Obama appears determined to move ahead to bolster his Democratic Party’s chances in the November congressional elections.

Obama was set to announce plans as early as today to invest US$50 billion into the nation’s roads, bridges and rail lines even though new jobs wouldn’t be created til next year. He’s preparing for a major economic policy speech mid-week in Cleveland.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 1.27% to 82.05.

“We are seeing some relief from fears about a double-dip recession in the U.S. helping risk sentiment and the euro,” Gareth Berry, currency strategist at UBS, told Reuters.

“But whether this sentiment can be sustained or not is difficult to say.”

International Monetary Fund chief economist Olivier Blanchard told France's Le Figaro that a US slowdown would have an automatic impact on growth in Asia in the short term but that "decoupling" between developing and rich economies was possible in the medium term.

The euro was at US$1.2885, having risen to US$1.2918 earlier in the day, its highest since August 12.

The greenback slipped to 84.17 yen.

Euro zone government bond yields were flat to higher.

US oil prices fell as the end of the US driving season and high levels of unemployment in the world's biggest oil consumer fuelled concerns over the outlook for demand.

The New York Mercantile Exchange (NYMEX), home to benchmark US crude futures also known as West Texas Intermediate or WTI, will combine trades from Sunday, Monday and Tuesday into one trading session, with a single settlement at Tuesday's close.

US crude for October delivery was down 65 cents at US$73.95 a barrel by 1638 GMT.

ICE Brent declined 3 cents to US$76.64

Gold held steady in Europe as expectations for an increase in demand going into the fourth quarter offset some lingering concern over the outlook for economic growth.

Spot gold was bid at US$1,249.10 an ounce at 11.31am EDT, against US$1,248.04 late on Friday.

US gold futures for December delivery firmed 20 cents to US$1,251.30.

Meanwhile, gains in base metals helped support industrial precious metals such as platinum and palladium. Palladium had its largest weekly gain since late July last week, rising 5.7%.

On Monday, platinum was at US$1,557.25 an ounce against US$1,553.40 and palladium at US$527 against US$526.68.

Both metals benefited from data last week that showed a hefty rise in Chinese car sales in August. Chinese cars predominantly use petrol engines, which have a higher loading of palladium than platinum.

Silver was steady at US$19.89 an ounce ounces versus US$19.87.

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