Europe Stocks Move Up Despite Rate Fears

German shares rose more than one per cent and Britain's blue-chip FTSE 100 index drove back above 3,900 and within a few points of its trading record.

An attempt by the dollar to test higher levels spluttered out amid talk of sizeable sell orders and the currency slipped below 109 yen late in the morning.

The dollar is facing a brick wall on the top which makes it look unlikely that it will break out of the current range in the near-term, said Steve Barrow, economist at Chase in London.

By 1100 GMT the dollar was at 1.4915 marks and 109.00 yen, compared with 1.4913 and 109.32 in late European trade on Friday.

 

Europe's financial markets remained gripped by the prospects for interest rates following Friday's US jobs data which showed that unemployment fell in August but earnings rose.

It has helped to give the US asset markets a firmer underlying tone and that tends to help the dollar, said Alex Jackson, the manager of treasury sales at Nikko Bank in London.

Many traders and investors are betting on a rise of 0.25 per centage point in US interest rates when the Federal Open Market Committee next meets on September 24.

It's pretty clear the Fed will raise rates.

The debate is simply about when and how much, said Tony Norfield, treasury economist at ABN Amro.

Any rise should help the dollar but is likely to weigh on stock markets because investors will be tempted to switch out of equities and into bonds.

British stocks bounced higher at the start and got another boost from producer price data showing output prices rose 1.2 per cent year-on-year, the lowest rise since October 1967.

Excellent figures, particularly impressive when you bear in mind several adverse factors, notably the rise in global oil prices, Mark Hale of Sakura Finance commented.

British government bonds firmed following the prices data and stocks drove within 11 points of their trading record of 3,922.1 set on August 28 before the market briefly flagged.

By 1100 GMT the FTSE index was trading at 3,907.5, up 14.5 points from Friday's close.

I think the FTSE is set for record highs this week but at present, the market is not blowing the socks off traders...this week's US data is giving investors new cause to worry, Roger Monson, chief equity strategist at Daiwa Europe Ltd, said.

German shares built on a late burst of buying on Friday by pushing the 30-share DAX index up by more than one per cent.

Dealers said the dollar-mark exchange rate was continuing to support equities, but the market would probably have to wait for higher volumes before making further concrete gains.

The German airline Lufthansa traded higher during the morning, but traders saw that as a technical correction after last week's weakness.

French stocks traded higher through the morning, too, buoyed 12 points by rising bond prices and favourable first-half company results, brokers said.