GLOBAL MARKETS: European Stocks Up Slightly Ahead Of Payrolls

LONDON -- European stocks were slightly higher Friday, benefiting from Wall Street's rally Thursday. Still, traders were wary of putting more cash on the table, as they adopted a cautious stance ahead of the key U.S. employment report due at 1330 GMT.

"There are fears that the unemployment rate could well hit the 10% level for the first time since 1983. We would look for further declines in the earnings growth numbers," said Rob Carnell, chief economist at ING Wholesale Banking.

The payrolls report is expected to show an easing in the number of jobs lost overall, with 175,000 jobs shed in October compared with 263,000 lost in September, according to economists surveyed by Dow Jones Newswires.

At 0845 GMT, the pan-European Stoxx 600 index was 0.4% higher at 241.53. London's FTSE 100 index had gained 0.2% to 5139.09. Frankfurt's DAX index was up 0.2% at 5498.12, and the CAC-40 index in Paris was 0.2% higher at 3718.16.

Although last week's U.S. gross domestic product figures showed the world's largest economy has returned to growth, unemployment is still at very high levels, said Tom Salmon, trader at Spreadex Limited. "Unless the employment figures start to improve, investors will see any growth as artificial, down to government stimulus, and when that stimulus is withdrawn, the likelihood of a further dip will increase," added Salmon.

On Wall Street Thursday, improving signals from the labor market and rising October retail sales gave life to consumer stocks, with the Dow Jones Industrial Average closing back above 10,000.

The DJIA closed up 2.1% at 10,005.96, marking its biggest point gain since July 15. After ending October on a sour note, with the index pushing below 10,000 on Oct. 26 and staying below that level since, the DJIA has now finished higher in three of the last four sessions. The Standard & Poor's 500 closed up 1.9% at 1066.63.

Filings for jobless benefits declined to their lowest level in 10 months last week, ahead of the payrolls report, helping stocks broadly. Consumer firms were also helped by a 1.8% gain for retail sales in October. Although that figure came in below expectations, some retailers did post margin improvements and lifted their third-quarter guidance.

Still, that consumer-sensitive issues were the market's leading gainers on Thursday was a point of concern amongst some traders. While employment trends have improved, Friday's report is still expected to show nearly 10% unemployment, up from the last registered rate at 9.8%.

In Asian trade, shares were broadly higher early Friday, taking their cue from Wall Street's strong performance overnight. Hopes that governments around the world would remain committed to stimulus measures were supporting sentiment, although there was some caution ahead of the U.S. payrolls data. Hong Kong's Hang Seng was 1.4% higher and Japan's Nikkei 225 rose 0.7%, while Korea's Kospi Composite advanced 1.4%.

"This week's rash of central bank meetings has concluded. And the takeaway message is that the major central banks have not begun to remove the extraordinary liquidity provisions," said Brown Brothers Harriman. "The key point is liquidity, which we believe is a critical driver, remains ample," which will encourage risk-seeking behavior.

Government policy on stimulus measures is set to remain in the headlines in the near term, with the Group of Twenty and APEC meetings coming up. "The timing and methods of reversing such stimulus are likely to be a focal point," said Standard Chartered analysts.

In the European currency markets, exchange rates were little changed ahead of the payrolls data. At 0900 GMT, the euro was trading at $1.4896, up from $1.4871 late in New York, while the dollar was at Y90.57, down from Y90.71.

If the numbers come in as expected, the euro could shoot toward $1.50, said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. But if the unemployment figure ticks up to 10%, the psychological impact of such a level could spook investors, potentially causing stock markets and higher-yielding assets, such as the euro and commodity-backed currencies, to tank, Woolfolk said.

Meanwhile, spot gold was at $1094.75 per troy ounce, up $3.50 from the New York close, while in the oil market Nymex December crude oil was up 64 cents at $80.26 per barrel.

Morgan Stanley said the upside for crude was limited as supportive macroeconomic factors are beginning to fade. "The deluge of global liquidity has contributed to lifting oil prices since February... with the end of easing approaching, we envision a harder grind ahead--one where fundamentals will matter more."

Elsewhere, European bond markets opened little changed, with the December bund futures contract last seen at 121.11, up 0.10.