Europe shares resume rally

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European stocks rose on Friday morning, erasing most of the previous day's pull-back and resuming a week-long rally as investors judged the European Central Bank remains committed to bold action to fight the debt crisis.

Markets were also awaiting US jobs data that could fuel expectations of further stimulus from the Federal Reserve.

At 10:41 SA time, the FTSEurofirst 300 index of top European shares was up 1 percent at 1,065.50 points, on track for its ninth weekly gain in a row, extending its longest run of weekly rises since mid-2005.

The benchmark index dropped 1.2 percent on Thursday after European Central Bank President Mario Draghi disappointed a some investors by announcing no immediate action to help lower the borrowing costs of Spain and Italy.

“There was no 'bazooka' from the ECB as some had expected, but sometimes the threat of action alone is very efficient.

The risk is on the upside now, no one want to short this market,” a Paris-based trader said.

The euro zone's blue chip Euro STOXX 50 index was up 1.5 percent at 2,295.67 points. It lost 3 percent on Thursday following Draghi's press conference, but with Friday's recovery, it has risen 7 percent since Draghi said last week the central bank was ready to do whatever it took to save the euro.

The index dipped in early trade on Friday, before bouncing off the 50 percent Fibonacci retracement of its week-long rally.

Also helping the upbeat mood, Siemens surged nearly 5 percent after the engineering conglomerate said it has started a share repurchase programme worth up to 3 billion euros, sparking hopes of further buyback plans across the market.

RISK APPETITE RECOVERS

Euro zone banks also recovered after Thursday's sell-off, with Societe Generale up 4.5 percent, Intesa Sanpaolo up 6.1 percent and Deutsche Bank up 3.7 percent. The euro zone STOXX bank index has gained 12 percent since Draghi's comments.

The Euro STOXX 50 volatility index, Europe's main gauge of equity market investor anxiety known as the VSTOXX index, dropped 8 percent to a two-week low below 25, signalling a surge in risk appetite.

But despite the brisk rally since last Wednesday, a number of traders and fund managers remained cautious about the market's direction over the next few days.

“Draghi is keeping investors in suspense, he's basically winning time. But at some point, we need a clear plan, not just threats, otherwise the market will remain very erratic,” said Alexandre Le Drogoff, fund manager at Talence Gestion, in Paris.

“I'm relatively cautious at this stage, and I see entry points on the Euro STOXX 50 around 2,200 points, so I expect a bit of consolidation now.”

Around Europe, UK's FTSE 100 index was up 0.9 percent, Germany's DAX index up 1.5 percent, and France's CAC 40 up 1.4 percent.

Later in the session, US monthly jobs data is expected to show non-farm payrolls rose 100,000 last month, according to a

Reuters survey, after gaining 80,000 in June.

A lower-than-expected figure could strengthen hopes the Fed will launch additional stimulus measures, such as a third round of asset purchases, to help boost the economy. - Reuters


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