European Stocks Rise on Manufacturing

By Stephen Kirkland and Will Hadfield - Jan 2, 2012 8:11 PM GMT+0700

European (SXXP) stocks rose, following the Stoxx Europe 600 Index’s first annual loss since 2008, after manufacturing in Germany and China beat forecasts. French bonds fell before debt sales this week.

The Stoxx 600 added 0.8 percent at 1:09 p.m. in London, with Germany’s DAX Index (DAX) climbing 2.2 percent. U.S. and U.K. markets are closed today for the New Year’s holiday. The MSCI Asia Pacific excluding Japan Index slipped 0.3 percent. French 10-year bonds fell for a fourth day, pushing yields six basis points higher to 3.20 percent.

Germany’s purchasing managers index gained to 48.4 last month and a manufacturing gauge for China increased to 50.3 percent, according to reports by Markit Economics and the Beijing-based logistics federation. Data later this week may indicate U.S. factory output and payrolls improved, Bloomberg surveys showed. France plans to sell 16.9 billion euros ($21.9 billion) of debt this week.

“On the first day of the year, a lot of investors, having cleaned their portfolios, have liquidity to invest,” said Arnaud Scarpaci, a fund manager at Agilis Gestion SA in Paris, which oversees about $84 million. “Germany can be seen as a safe haven because it has stronger growth than other countries. People are investing in industries with a lot of visibility, such as utilities.”

More than nine shares rose for every one that fell in the Stoxx 600. RWE AG, Germany’s second-largest utility (RWE), jumped 3.4 percent. Veolia Environnement SA, the world’s biggest water utility, climbed 3.3 percent after the Sunday Times reported that Allianz SE and Canada’s Borealis pension fund were interested in bidding for its U.K. water business. The newspaper didn’t cite anyone.

Debt Sales

The yield on two-year French notes rose three basis points to 0.83 percent as the nation prepares to sell as much as 8.9 billion euros of bills tomorrow and 8 billion euros of bonds maturing in 2021, 2023, 2035 and 2041 on Jan. 5.

German bonds declined for the first time in five days, pushing 10-year yields up six basis points to 1.89 percent. The country will auction 5 billion euros of bonds due in 2022 on Jan. 4. Italian 10-year bond yields fell 15 basis points to 6.96 percent, narrowing their spread with the benchmark German bunds to 507 basis points from 528 basis points last week.

The euro fell against 11 of 16 major currencies tracked by Bloomberg. It declined 0.1 percent against the yen, after earlier falling to 98.66 yen, the lowest since December 2000.

Some 157 billion euros in debt will mature in the 17-member euro area in the first three months of 2012, according to UBS AG. By the end of that period, leaders have pledged to draft a stricter rulebook for controlling government spending. German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet in Berlin Jan. 9 to work out details.

Overcoming Setbacks

“The path to overcoming this won’t be without setbacks, but at the end of this path, Europe will emerge stronger from the crisis than before,” Merkel said in a New Year’s speech broadcast Dec. 31. She said that her government will do “everything” to bring the euro out of the slump.

The dollar was little changed against the euro and the yen. The Institute for Supply Management’s factory index probably climbed to a six-month high of 53.4 in December, economists projected ahead of a Jan. 3 report. Readings above 50 indicate expansion. Payrolls climbed by 150,000 workers after rising 120,000 in November, according to the median forecast of 62 economists before the Labor Department release on Jan. 6.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Will Hadfield in London at whadfield@bloomberg.net

To contact the editor responsible for this story: Stephen Kirkland in London at skirkland@bloomberg.net