Shares rise as investors look to new quarter, US growth

Tuesday, 2 July 2013 00:00 - - {{hitsCtrl.values.hits}}

LONDON (Reuters) - Shares rose on Monday as investors edged back into riskier assets at the start of a new quarter, pinning their hopes on a U.S. economic recovery and brushing off signs of a slowdown in China. MSCI’s world equity index rose 0.3% by mid-morning in Europe, having finished a volatile three months to June with its first loss since the same period of 2012.

Emerging market stocks touched a 12-day high, having risen more than 4% last week after six straight losing weeks on concerns the planned withdrawal of U.S. monetary stimulus will send funds flowing back to developed markets. Evidence of a slowdown in China’s factories had little effect on sentiment despite pointing to weakness in the world’s No.2 economy, with markets focused more closely on U.S. prospects. Investors are highly sensitive to data from across the Atlantic because it will shape when the Federal Reserve begins tapering its $85-billion-a-month asset purchase program. A report on manufacturing activity likely to show an improvement in June is the next milestone, with Friday’s June jobs report, which comes a day after the Independence Day holiday, seen as critical to the market’s next direction. “Moderate payroll growth is probably enough now to keep unemployment ticking down and with that pace you’ll get (Fed) tapering starting in September,” said Nick Beecroft, senior market analyst at Saxo Capital Markets. A strong jobs report could fan speculation about an early end to the stimulus, lifting both bond yields and the dollar at the expense of many emerging markets and commodity markets. “It could be a pretty hairy end to the week. Markets will be pretty whippy and thin on Friday,” Beecroft said. An anticipated end to Fed bond buying supported the dollar near a four-week peak against a basket of currencies. It rose 0.45% against the yen to 99.57 yen. The euro, however, was up 0.3% at $1.3040 after a survey showed manufacturing in the euro zone stabilized in June. “Both output and new orders barely fell during June, and on this trajectory a return to growth for the sector is on the cards for the third quarter,” said Chris Williamson, chief economist at the survey’s compiler Markit. Traders also looked ahead to Thursday’s policy meeting of the European Central Bank - which in contrast to the Fed is likely to emphasise a commitment to keeping policy loose. “We expect the ECB to continue emphasising that extraordinary accommodative policies will continue, and that it has other options if looser monetary policy is needed,” said analysts at RBC Capital Markets. The PMI manufacturing survey eased pressure on the ECB to do more, while hopeful individual country surveys helped Spanish 10-year bond yields dip 7 basis points and Italy’s equivalent drop 5 bps.