GLOBAL MARKETS: European Stocks Build Gains On Econ Optimism

LONDON -- European stock markets were strong early Wednesday and extended their gains for a third consecutive session as a firm euro confirmed that appetite for risk remains intact and the Federal Reserve Chairman Ben Bernanke's call the recession has ended further boosted confidence.

"Equity markets remain in 'bull mode' as the Standard & Poor's 500 cash (index) edged into a new high for over a year," said Paul Rodriguez, analyst at Lloyds Banking Group.

On Tuesday, Chairman Bernanke said that, from a technical point of view, the "recession is very likely over at this point," during a question-and-answer session at the Brookings Institution.

"Bernanke did not say anything that could upset the markets and Tuesday's strong U.S. retail sales, especially the core number, has really boosted sentiment. There are signs that the U.S. consumer is coming back to life, and that is playing out across Europe," said David Morrison, strategist at GFT.

At 0810 GMT, Stoxx 600 index was up 0.7% at 243.11. London's FTSE 100 index gained 0.9% to 5088.68, Frankfurt's DAX index added 0.7% to 5669.58, and the CAC-40 index in Paris tacked on 0.9% to 3787.69.

The improved macroeconomic picture helped the retail sector produce significant gains Wednesday, and it also found support from Inditex (ITX.MC), Europe's largest fashion retailer by revenue, which beat forecasts with only a 7.6% fall in first-half net profit, and U.K. clothing and houseware retailer Next (NXT.LN), which posted a 6.9% rise in first-half pretax profit.

Shares in Inditex added 3.5% while Next shares were also 3.5% higher. The pan-European Stoxx 600 retail index gained 0.6% to 253.38.

Traders said that, with the macroeconomic picture improving, the day's line up of economic data releases should stimulate the market further as many look for further signs of recovery in the global economy.

In the U.K., unemployment figures and average earnings data, due at 0830 GMT, will be put under the microscope. "We cannot call the end of the upward trend in the U.K. unemployment rate yet but we certainly see that the claimant count has been increasing at a significantly slower pace in recent months, a sign that the effects of the cyclical slowdown are not as strong as in the second half of 2008 and the first few months of the year," said Annalisa Piazza, strategist at Newedge Group.

Also of note, euro-zone harmonized inflation data at 0900 GMT and U.S. inflation data at 1230 GMT will garner attention. "The euro-zone inflation rate is likely to have reached the trough in July and deflationary pressures are set to decrease in the coming months. On the month, we look for prices to post a 0.3% increase in August, mainly driven by seasonal factors," added Piazza.

The improved macroeconomic picture helped U.S. stocks mark fresh 2009 closing highs Tuesday, with the Industrial Average ending up 0.6% at 9683.41, marking its seventh gain in eight sessions and its highest close since Oct. 6. The S&P 500 tacked on 0.3% to 1052.63, also making its highest close since Oct. 6.

The bullish tone from Wall Street helped Asian markets produce healthy gains Wednesday, with Japan's Nikkei 225 up 0.5%, South Korea's Kospi Composite 1.8% higher and Hong Kong's Hang Seng index up 2.6%.

However, worries that global markets may have already gone too far prevail: "The (U.S. stock market rise) was surprisingly light; likely a function of investors unwilling to be overly long on lingering fears of a global equity correction that drags all risk assets weaker," said analysts at RBC Capital Markets Emerging Markets Research Group.

In the currency markets, the euro advanced to a new nine-month high against the dollar Tuesday for the sixth consecutive trading session. It remained firm Wednesday, while the dollar and sterling both fell back. At 0825 GMT, the euro was trading at $1.4697, up from $1.4658 in late New York business Tuesday. The dollar was at Y90.38, down from Y91.05, and sterling was at $1.6480, down from $1.6488.

Calyon, in a note, revised up its year-end target for the euro to $1.50 from $1.42. It said dollar weakness remained the short-term underlying theme for foreign exchange markets as the greenback superseded the yen as the funding currency of choice amid the ongoing "grind higher in global optimism."

Elsewhere, spot gold was trading at $1016.00 per troy ounce, up from $1007.70 late in New York, while October Nymex crude oil futures were down 13 cents at $70.80 per barrel on Globex.

Meanwhile, the advance in equity market left European bond markets little changed, with the October bund futures contract last seen at 121.08, up 0.01.