Euro markets jump on robust earnings

PARIS/LONDON: A robust set of corporate earnings and easing concerns about the US economy lifted European shares to 5-1/2 year highs yesterday, while a rally in commodity-related stocks also fuelled market gains.

Alcatel??™s 3.3% share price rise added to the market??™s momentum after the French telecoms equipment maker said it had won a $300mn networks modernisation contract.

The pan-European FTSEurofirst index of 300 leading shares gained 1.1% to end at 1,464.96 points, its highest closing level since May 28, 2001, and bringing its gains since the start of the year to 14.9%.

Shares extended Friday??™s gains after a stronger-than-expected US employment report eased worries about the scope of a slowdown in the world??™s biggest economy.

But several observers pointed out that many investors had decided to overlook a sharper-than-expected rise in average hourly earnings, which they said will hurt US corporate margins.

"The employment report, along with the labor costs report, is actually more negative for equities than for bonds, although you wouldn??™t know it by last Friday??™s market action, because the labor cost pressure is more likely to affect margins than inflation," said David Rosenberg, economist at Merrill Lynch.

"For equity market investors, what they ultimately pay for is corporate earnings," Rosenberg said, adding:

"If we are correct that gross domestic product growth in the fourth quarter is unlikely to be much better than the sub-2% pace we saw in the third quarter, then rest assured that the business cost and productivity implications from last Friday??™s report is that profits are very likely contracting... in the current quarter."

But Rosenberg and other analysts said year-end "window dressing" - a ritual equity buying spree aimed at making fund managers??™ portfolios look good for investors - may delay a sell-off linked to the realisation that earnings growth will likely weaken in coming quarters.

But for now, earnings remained strong, which helped propel Europe??™s top indexes to multi-year highs. London??™s FTSE 100 gained 1.2% to its highest closing level since Feb. 2001, while Frankfurt??™s DAX gained 1.4%, also ending the session at a level last seen in Feb. 2001.

But the CAC 40, with a 1.2% rally, did not manage to break above a five-year closing high of 5,422.28 set on Oct. 26.

Ryanair was among the region??™s top gainers, up 3.6% after Europe??™s biggest budget airline posted a stronger-than-expected rise in quarterly net profit and gave a more upbeat forecast for the full year.

In the media sector, Havas shares added 2.9% after the world??™s sixth-largest advertising group posted a 1.9% rise in underlying third-quarter sales, in line with expectations.

Elsewhere, Munich Re gained 3.4% a day before third-quarter earnings which investors expect to show a surge in net income.

German industrial group Linde rose 2.5% on news it was selling its forklift business Kion Group to financial investors Kohlberg Kravis Roberts and Goldman Sachs Capital Partners for 4bn euros, a price that pleased analysts.

The dollar was steady against the euro yesterday. The euro edged lower to $1.2715 in European trading from $1.2717 in New York late on Friday. The dollar stood at ??118.41 from ??117.99 late on Friday. The pound was being traded at $1.8967 from $1.9007 on Friday.

On the London Bullion Market, the price of gold climbed to $626.10 per ounce, from $622.75 late on Friday. ??“ Agencies