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Manufacturing data, Portugal auction lift markets

By Pan Pylas

Associated Press

Published: Wednesday, Dec. 1 2010 8:40 a.m. MST

LONDON — Stocks and the euro rebounded strongly Wednesday after a run of buoyant economic data from around the world and a solid Portuguese bond auction helped take investors' minds off Europe's government debt crisis for the moment.

In Europe, the FTSE 100 index of leading British shares was up 121.58 points, or 2.2 percent, at 5,649.85 while Germany's DAX rose 157.68, or 2.4 percent, to 6,846.17. The CAC-40 in France was 58.76 points, or 1.6 percent, at 3,669.20.

In the U.S., the Dow Jones industrial average was up 192.09, or 1.8 percent, at 11,198.11 soon after the open while the broader Standard & Poor's 500 index rose 19.50 points, or 1.7 percent, at 1,200.05.

Sentiment in the markets has been buoyant since figures showed China's manufacturing boom accelerated in November, sustaining hopes that the world's second largest economy is still continuing to grow strongly.

The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers index — a gauge of business activity — rose to 55.2 last month from 54.7 in October. A competing index, the HSBC China Manufacturing PMI also rose solidly.

Equivalent surveys for the eurozone and Britain also confirmed that the global manufacturing recovery remains on track.

The day's series of manufacturing surveys came to an end with another strong report into the U.S. manufacturing sector from the Institute for Supply Management. Though its main index fell modestly to 56.9 from October's 56.9, it was in line with expectations and means that growth in the sector remains elevated — anything above 50 indicates expansion.

The ISM survey added to the weight of evidence suggesting that the U.S. economic recovery is gaining traction. Further insights will be sought Friday when the closely-watched U.S. nonfarm payrolls data for November are published. Indications are that this too will echo the recent economic findings.

The ADP payrolls firm revealed Wednesday that 93,000 private jobs were added during November, ahead of expectations for a more modest 70,000 gain. Previous months' revisions were also positive.

"The positive ADP numbers should prompt an upward revision to Friday's payrolls expectations, though improvements in the unemployment rate will take longer to materialize," said Michael Woolfolk, an analyst at Bank of New York Mellon.

The raft of upbeat figures have proved to be a welcome relief to investors, who have for days only been interested in one thing — whether Europe's debt crisis, which has already seen Greece and Ireland bailed out, will spread to other euro countries, notably Portugal, or more dangerously Spain. As a result, stocks around the world have been on the retreat, while the euro has slid to its lowest level since mid-September.

Some of those jitters were eased Wednesday by a fairly strong Portuguese €500 million auction of one-year Treasury bills. Though the yield the country had to pay rose to 5.28 percent from the previous 4.81 percent, the markets were encouraged that the rate was not even higher and that demand was buoyant.

"The bill auction was fully subscribed and went better than expected," said David Buik, markets analyst at BGC Partners.

Though the auction went better than feared, the deterioration in the markets' perception of Portugal's budgetary situation is clearly evident in a comparison with last year's equivalent auction, when the yield was only 2.88 percent.

Although Portugal is widely considered to be the most at risk of a bailout, the major worry in the market is a possible bailout for Spain. Most analysts think European authorities can handle bailing out the relative minnows of Greece, Ireland and Portugal, but Spain — at around 12 percent of the euro-zone economy — would be different matter altogether.

It's this worry primarily that has hit the euro hard over recent days. On Tuesday, it sank to $1.2968, its lowest since mid-September.

The improving stock market tone, coupled with mounting expectations that the European Central Bank will announce fresh crisis measures Thursday following its monthly policy meeting, has helped the euro recover some ground — by mid afternoon London time, the euro was 0.8 percent higher on the day at $1.3086.

"The euro has bounced from its lows, in part on hopes for a more active ECB role in the debt crisis with markets keenly anticipating tomorrow's ECB policy meeting," said Vassili Serebriakov, a currency strategist at Wells Fargo Bank.

Meanwhile, the yen's continuing decline against the dollar has helped shore up Japanese stocks, with the Nikkei 225 closing up 0.5 percent at 9,988.05 — a lower yen boosts Japan's exports, all other things being equal.

By mid-afternoon London time, the dollar was up 0.7 percent at 84.23 yen.

Elsewhere, Hong Kong's Hang Seng gained 1 percent to 23,249.80 and China's Shanghai Composite Index was up 0.1 percent at 2,823.44. Australia's S&P/ASX 200 closed flat at 4,586.6 after figures showed the country's economy grew by just 0.2 percent in the third quarter from the previous three months.

Benchmark oil for January delivery rose $1.52 to $85.63 a barrel in electronic trading on the New York Mercantile Exchange.

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AP Business Writer Joe McDonald in Beijing contributed to this report.

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