Markets resilient despite European economic woes

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By PAN PYLAS, Associated Press

LONDON (AP) — Markets recovered Thursday as a weaker-than-anticipated U.S. manufacturing survey eased concerns that the U.S. Federal Reserve would abandon its super-loose monetary policy sooner than expected.

News that the restructuring of Greece's government debt is not yet considered a credit event added to the markets' optimism. If the International Swaps and Derivatives Association, a panel convened by a derivatives market trade group, had ruled it a credit event that would have meant bondholders who hold credit-default swaps — complex financial products that act as insurance against default — would have been paid off.

On Wednesday, the market mood had been sour 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 they thought. That conclusion prompted a reverse in stock markets that carried through into the Asian session.

Some of those concerns eased Thursday after the weakening manufacturing survey from the Institute for Supply Management, whose main index for February fell to 52.4 from 54.1 in January. Though anything above 50 indicates an expansion, it was the lowest reading since November.

"The surprise fall ... is hardly a disaster but it does support our view that the economy is not quite as strong as recent data have led others to believe," said Paul Dales, senior U.S. economist at Capital Economics.

Following the data, stocks consolidated earlier gains.

In Europe, the FTSE 100 index of leading British shares was up 0.9 percent at 5,922, while Germany's DAX rose 1.1 percent to 6,929. The CAC-40 in France was 1 percent higher at 3,487.

In the U.S. the Dow Jones industrial average was up 0.2 percent at 12,973 while the broader S&P 500 index rose 0.2 percent to 1,369.

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 euro4.5 billion ($6.05 billion) in medium-term debt on Thursday, a day after the ECB said it made euro529.5 billion ($712.4 billion) in low-interest loans to banks in the second round of its long-term credit infusion.

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

Figures from the EU 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 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 0.2 percent at $1.33.

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 74 cents to $107.81 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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