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Markets resilient despite European economic woes

By Pan Pylas

Associated Press

Published: Thursday, March 1 2012 5:20 a.m. MST

Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington, Wednesday, Feb. 29, 2012, before the House Financial Services Committee to deliver the semi-annual monetary policy report.

J. Scott Applewhite, Associated Press

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LONDON — Markets were resilient Thursday, despite concerns that the U.S. Federal Reserve may be turning a bit more hawkish and figures in Europe showing rising unemployment and inflation.

On Wednesday, the market mood soured after Fed Chairman Ben Bernanke said he was surprised by the scale of good news emerging about the U.S. economy.

Such news can help companies looking to expand their businesses, but investors concluded that the Fed won't be pumping more money into the U.S. economy anytime soon and that interest rates may rise sooner than anticipated. That conclusion prompted a reverse in stock markets that carried through into the Asian session.

"Yesterday's declines seem to have tempted in a few more buyers, and for the moment the general uptrend in most markets remains intact," said Chris Beauchamp, a market analyst at IG Index.

In Europe, the FTSE 100 index of leading British shares was up 0.5 percent at 5,899, while Germany's DAX rose 0.4 percent to 6,886. The CAC-40 in France was 0.3 percent higher at 3,464. Wall Street was poised for modest gains at the open — both the Dow futures and the broader S&P 500 futures were 0.1 percent higher.

Most of the world's leading indexes are back at levels they were trading at before last summer's massive sell-off. U.S. markets are actually trading at their highest levels since before the collapse of U.S. investment bank Lehman Brothers in September 2008. The tech-heavy Nasdaq index is doing even better, having breached the 3,000 level Wednesday for the first time since 2001.

Much of the buoyancy in the markets over recent months has been credited to the European Central Bank's first round of three-year loans in December as it eased concerns of an imminent credit crunch in Europe. A second offering on Wednesday appears to be working its magic, too. Spain successfully raised €4.5 billion ($6.05 billion) in medium-term debt on Thursday, a day after the ECB said it made €529.5 billion ($712.4 billion) in low-interest loans to banks in the second round of its long-term credit infusion.

In the secondary bond markets, the yield on Spain's 10-year bond dropped a further 0.05 percentage point to 4.91 percent, while Italy's fell 0.09 percent to 5.02 percent. At the height of last year's febrile atmosphere in the markets, the rates were hovering round the 7 percent mark — widely considered to be unsustainable in the long-run.

Though there are signs of an easing in the European debt crisis, the European economy remains moribund at best.

Figures earlier from the EU's statistics office Eurostat showed unemployment in the 17-country eurozone unexpectedly rising to 10.7 percent in January, a new record high since the creation of the euro in 1999. If that wasn't bad enough for the eurozone economy, which already contracted by 0.3 percent in the final three months of 2011, Eurostat said eurozone inflation ticked up to 2.7 percent in February from 2.6 percent the month before. The rise takes inflation further above the European Central Bank's target of keeping price increases at just below 2 percent.

The ECB holds its monthly policy meeting next week and it is expected to keep its benchmark rate unchanged at the record low of 1 percent, especially after its massive injection of cash into the banking system on Wednesday.

The euro was left unmoved by the data and it was trading flat at $1.3325.

Earlier in Asia, Japan's Nikkei 225 index dropped 0.2 percent to close at 9,707.37, having closed on Wednesday at its highest level since Aug. 2.

Mainland China shares were mixed after Chinese manufacturing improved for the third month in a row in a sign of renewed strength in the global economy. The Shanghai Composite Index closed down 0.1 percent to 2,426.11. The smaller Shenzhen Composite Index rose 0.4 percent to 960.75.

But Hong Kong endured a sell-off. The Hang Seng, which hit a seven-month high Wednesday, fell 1.4 percent to 21,387.96 as property shares faced a pounding after the Shanghai government announced that — contrary to earlier reports — property restrictions would not be eased on purchases of second homes.

Oil prices tracked equities higher. Benchmark oil for April delivery was up 45 cents to $107.52 per barrel in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this report.

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