By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets posted solid
gains on Wednesday after better-than-expected Chinese growth data
encouraged investors to move back into riskier assets and weak
euro-zone inflation added more pressure on the European Central
Bank to loosen policy.
The Stoxx Europe 600 index jumped 1.3% to close at 330.82,
recovering from its 1% loss on Tuesday, when sentiment was hampered
by escalating tensions in Ukraine. The index moved a notch higher
in the afternoon when the U.S. markets opened with solid gains
after a strong reading on industrial production.
Also helping push the pan-European benchmark higher on
Wednesday, shares of Tesco PLC added 2.6% after the supermarket
chain reported full-year trading profit ahead of analyst
expectations.
Euro-zone inflation at four-year low
More broadly, investors in Europe welcomed euro-zone inflation
data confirming consumer prices rose by a meager 0.5% in March. The
reading marked the lowest level of inflation since November 2009
and raised speculation the ECB will need to stimulate the economy
further to fight the threat of deflation.
ECB President Mario Draghi has repeatedly brushed off fears of
regional deflation, but said last weekend that a further rise in
the euro could trigger additional monetary easing to keep inflation
from falling too low. The euro (EURUSD) is currently trading around
$1.3815, and economists fear that an appreciation to $1.40 will
hurt exports and dampen the fragile economic recovery in the
currency union.
"The ECB would risk losing serious credibility if it did not
react to any further fall in euro-zone inflation, marked
appreciation in the euro or stalling in the euro zone's economic
recovery," said Howard Archer, chief European and U.K. economist at
IHS Global Insight, in a note.
China growth data
Outside Europe, investors were also encouraged by Chinese growth
data. The gross domestic product in the world's second-largest
economy increased by 7.4% in the first quarter, beating forecasts
of a 7.3% print, but below the 7.7% seen in the final quarter last
year. Economists worry that a sharp slowdown in China's economy --
a so-called hard landing -- would hamper global growth and spark
renewed volatility on financial markets.
Meanwhile, China's industrial production grew 8.8% in March,
slightly below analyst expectations of 9%. Unexpected weakness in
the country's manufacturing sector earlier in the year triggered a
sharp selloff in risk assets, particularly in emerging-markets
currencies.
"On the whole, bulls [are] taking solace from a case for more
stimulus to bolster growth as well as growth not quite tanking
either," said Mike van Dulken, head of research at Accendo Markets,
in a note.
The conflict in Ukraine has recently kept investors on edge and
on Wednesday the tensions escalated further when armored vehicles
in the country's east raised Russian flags. Russia's MICEX index ,
however, closed 0.9% higher at 1,322.60, after sliding 2.5% on
Tuesday. Year-to-date the benchmark was still down 12%.
Movers
Elsewhere, Germany's DAX 30 index rose 1.6% to 9,317.82, while
France's CAC 40 index gained 1.4% to 4,405.66. The U.K.'s FTSE 100
index advanced 0.7% to 6,584.17.
The U.K. benchmark reacted little to upbeat labor-market data,
showing unemployment fell to 6.9% in the three months to February,
from 7.2% in January and below forecasts of 7.1%. With the drop,
joblessness has fallen below the Bank of England's 7% threshold and
likely activates the central bank's new "fuzzy" forward guidance on
interest rates.
The pound (GBPUSD)rose to $1.6793 after the data, from $1.6723
late Tuesday. A faster-than-expected improvement in the labor
market could make the Bank of England hike interest rates sooner
than expected, which would be supportive for the pound.
Among notable stock movers in the European indexes, Sports
Direct International PLC jumped 5.6% to 7.88 pounds ($13.19), after
Bank of America Merrill Lynch raised its price target on the sports
retailer to GBP10.70 a share, from GBP10.
On a more downbeat note, shares of Credit Suisse Group AG (CS)
lost 1.5% after the Swiss bank reported first-quarter earnings
below analyst expectations.
ASML Holding NV slid 5.3% after the Dutch chip maker cut its
first-half guidance slightly to reflect lower demand from some of
its clients.
Rémy Cointreau dropped 2.5% after Société Générale cut the
drinks maker to sell from hold.
More must-reads from MarketWatch:
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Asia markets live blog: China GDP in focus
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