European stock markets registered strong gains Wednesday, due to a slew of solid economic readings around the globe and well-received German and Portuguese debt auctions, which combined to buoy market sentiment.
The mood was lifted early Wednesday after the release of China's official manufacturing Purchasing Managers' Index, which rose to 50.5 in January from 50.3 in December, and was higher than the 49.5 forecast by economists.
Sentiment was further propped up by euro-zone manufacturing PMI rising to 48.8 from 46.9 in December, and the U.K. manufacturing PMI jumping to 52.1, against expectations for a reading of 49.7.
And in the U.S., the Institute for Supply Management's manufacturing PMI increased to 54.1 in January from a revised 53.1 in December, first reported as 53.9, indicating the country's manufacturing sector's expansion stayed on track in January.
The strong manufacturing readings indicate that a global recession can be averted, said Angus Campbell, head of sales at Capital Spreads, noting that if the recovery in the global economy can be sustained, this would prove to be a good time to buy stocks.
"Investors are becoming more and more optimistic that the major threat to growth, the European sovereign debt crisis, is slowly but surely being eradicated as central banks continue to flood the system with liquidity. So far this action has managed to avert a credit crunch, brought the yields on government bonds down and helped to boost confidence," added Mr. Campbell.
Late in Europe, the Stoxx Europe 600 index ended up 2% at 259.51. The U.K.'s FTSE 100 index ended up 1.9% at 5790.72, Germany's DAX rose 2.4% to 6616.64 and France's CAC-40 index finished up 2.1% at 3367.46.
European equities have had their best start to the year since 1998 and U.S. stocks managed to record their largest January gains in 15 years. Deutsche Bank's strategists noted that the Stoxx Europe 600 index has generated a total return of more than 4% during January, the best January return since 1998. "Earnings momentum has bottomed, the global economy is firmer and the three-year longer-term refinancing operation is positive for banks," they added.
Indeed, banks were the standout gainers Wednesday, amid growing expectations that Greece will conclude its talks with private-sector bondholders on the restructuring of its debt. The Stoxx Europe 600 banks index was up 3.8%. Banco Popular Espanol gained 4.6% after posting a 10% rise in fourth-quarter net profit. In London, Lloyds Banking Group rose 5.2% after announcing a restructure of its management team.
Debt auctions were in focus Wednesday. Germany sold €4.093 billion of 10-year bunds. The auction "went relatively well, showing good interest for the paper," said Newedge.
Meanwhile, Portugal sold the maximum targeted €1.5 billion of three- and six-month treasury bills.
"The lower accepted yields are a positive, albeit with the gloss on this taken off somewhat by the softening of demand," said Rabobank.
"From a 'restructuring contagion' perspective, these sales will do nothing to add to recent concerns but, then again, neither will they provide any safeguard against fears ratcheting up once again should, as seems perhaps likely, the market returns to fretting over the possibility Greece's restructuring will prove to be a template rather than a one-off solution," it added.
Other economic data helped support the bullish tone in the market. Earlier, data showed inflation in the euro zone held steady at 2.7% in January, in line with expectations.
In the U.S., the ADP employment report suggested the country gained 170,000 new private-sector jobs in January, in line with economists' expectations, while construction spending jumped 1.5% in December, better than expectations for a 0.5% rise. Late in Europe, the Dow Jones Industrial Average climbed 1.1% to 12767, while the Standard & Poor's 500-stock index rose 1.0% to 1326.
In currency markets, the euro gained ground against the dollar on the bullish tone in stock markets, although investors are still waiting for an agreement between Greece and its private-sector creditors. By late European trade, the single currency was fetching $1.3191 from $1.3083 late Tuesday in New York. The dollar was at ¥76.12 from ¥76.27.
Among commodities, light, sweet crude for March delivery was up two cents at $98.50 on the New York Mercantile Exchange. Gold for February delivery was up $11.70 at $1,752.10 per troy ounce late in Europe on the Comex division of Nymex.
Write to Ishaq Siddiqi at Ishaq.Siddiqi@dowjones.com
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