By Lincoln Feast
LONDON, Oct 20 (Reuters) – European stock indexes jumped about 1 percent on Thursday after a rally on Wall Street and strong earnings helped them recoup some of the previous day’s losses, while interest rate talk again supported the dollar.
Government bonds dipped as stocks recovered, and oil prices steadied as the threat of Hurricane Wilma damaging key U.S. production and refining facilities in and around the Gulf of Mexico receded.
Forecasting-beating numbers from software maker SAP (SAPG.DE: Quote, Profile, Research) and food giant Nestle (NESN.VX: Quote, Profile, Research) led stock gains, but mobile phone giant Nokia (NOK1V.HE: Quote, Profile, Research) dipped after its third-quarter results failed to impress investors.
The FTSEurofirst300 index of leading European shares was up 1.1 percent at 1,186 points, rebounding after suffering its biggest one-day points fall in more than a year on Wednesday.
SAP added 3.9 percent after raising its full-year outlook after a forecast-beating third-quarter.
Nestle was up 3.2 percent after its nine-month underlying sales growth of 5.8 percent topped expectations but Nokia dipped 1.3 percent after posting third-quarter earnings broadly in-line with forecasts.
British retailers were little moved by data showing sales rose at more than twice the expected rate last month, with analysts saying the figures further reduced the chance of an interest rate cut from the Bank of England in November.
Early indications were for a softer start on Wall Street, where a host of top companies are reporting, including Ford (F.N: Quote, Profile, Research), McDonald’s (MCD.N: Quote, Profile, Research) and Pfizer (PFE.N: Quote, Profile, Research).
U.S. stocks surged after the close of European markets on Wednesday, on the back of strong results from the likes of banking heavyweight JP Morgan Chase (JPM.N: Quote, Profile, Research).
Asian stocks also rose, with the Nikkei average closing up 0.5 percent to snap a six-day losing streak.
China was in focus after data showed its economy grew a faster-than-expected 9.4 percent in the third-quarter, and after sources said China Construction Bank [CCB.UL] raised $8 billion in the world’s largest IPO in four years.
DOLLAR FIRM
The dollar held near a two-year high against the yen and was firm against the euro after several Federal Reserve officials again reiterated that U.S. interest rates will need to rise further to control inflation.
The dollar has risen more than 10 percent this year, extending gains this month on interest rate expectations, but investors said much was in the price already.
“The message from the Fed is still hawkish and inflation pressure is building up. But it is not news any more that the Fed wants to raise rates,” said Johan Javeus, currency strategist at SEB Merchant Banking.
“There is also quite a strong resistance level around $1.19 against the euro. It takes some time for the market to break that level.”
The dollar was buying around 115.4 yen while the euro hovered around $1.1970, down about 0.1 percent.
TREASURIES DIP
U.S. Treasuries dipped as money moved back into equities and following comments on interest rates overnight from Fed officials including Fed Governor Donald Kohn.
Kohn said: “We are considerably closer to where policy needs to be than we were sixteen months ago, but we are not yet at a point where we can stop and watch the economy evolve for a while.”
Benchmark U.S. 10-year yields were trading at around 4.46 percent.
Yields on comparable 10-year euro zone government bonds rose to 3.30 percent as the market absorbed fresh supplies of bonds from Ireland, Spain and France.
U.S. crude oil futures were down slightly around $62 a barrel, having fallen on Wednesday after U.S. inventories data showed a surprisingly large build in crude and gasoline stocks.
News that Hurricane Wilma was downgraded to a Category 4 storm and looked to be heading east towards Florida helped to calm the market.
Gold hit a three-week low below $463 an ounce as stocks rebounded and oil prices fell before rebounding.