European shares rise on upbeat US data; banks gain

European shares rose on Thursday, boosted by mostly upbeat data from the United States, the world's biggest economy, and with banks gaining after taking advantage of cheap finance offered by the European Central Bank. The pan-European FTSEurofirst 300 index of top shares rose 1.1 percent to close at 982.01 points.
However, volume was very thin at just 56.1 percent of the index's 90-day average, on the last full trading day before Christmas, and strategists cautioned against reading too much into the movement. Euro zone banks rose 2.1 percent, as markets took a more positive view of 523 banks taking up nearly 490 billion euros in three-year cut-price loans from the ECB on Wednesday.
However, the index is down 37.3 percent in 2011, with many banks having suffered writedowns on exposure to eurozone peripheral debt. French heavyweight BNP Paribas rose 3.4 percent, taking its gain this week to 9 percent. "Some banks can make some money from this carry trade (borrowing at cheap rates and lending at higher rates) - that's why we've seen banks doing well. The fact that so many participated shows that there's no stigma attached to doing so," said Ian King head of international equities at Legal & General, which has 356 billion pounds ($555 billion) under management.
The number of Americans filing new claims for jobless benefits hit a 3-1/2 year low last week, bolstering views the economy was gaining momentum, even though third-quarter growth was revised down. Other data underscored the firming tone in the economy, with consumer sentiment scaling a six-month high in December and a barometer of future activity rising more than expected last month.
King noted that "leading indicators" were better than expected but said "there was little that moved the dial". He said Europe would have to resolve its issues for equities to move much higher and added: "A lot of companies will be cautious about the prospects for the year in their fourth-quarter earnings statements." Other strategists were more optimistic.
Angus Campbell, Head of Sales, Capital Spreads, described the US data, and also an increase to the final reading of UK GDP for the third quarter as "encouraging". He said there was a degree of optimism "that yesterday's flooding of the credit markets by the ECB with cheap loans to European banks could help stave off a deep recession within the eurozone and go some way to help resolve the debt crisis".
Miners and oils, economically-sensitive sectors, also rose. The STOXX Europe 600 Basic Resources index and the STOXX Europe 600 Oil & Gas index gained 1.6 and 1.7 percent respectively. The pan-European index has lost 12.5 percent in 2011. It is above the 50-day average of about 968 but has recently moved in a narrow range. It may now encounter resistance as it is close to the 38.2 percent Fibonacci retracement if its rise from a lifetime low of March, 2009, to a 2011 peak it reached in February.
Standard Life Investments said it had an overweight stance on the United States as its economy was performing better and was underweight Europe due to the ongoing worries about the eurozone debt crisis. "The operations of the ECB to some extent take away the possibility of a liquidity crunch and this is why equities are moving up a little," said Richard Batty, strategist at Standard Life Investments, part of the Standard Life Group, which administers more than $300 billion of assets.