European, Brazilian Stocks Rise as French Bonds, Euro Retreat

Europe Stocks, Euro Drop on Moody’s Review
A financial trader works at his computer screens at the Frankfurt Stock Exchange in Frankfurt. Photographer: Ralph Orlowski/Bloomberg

European stocks rallied, 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 and the euro weakened.

The Stoxx 600 closed up 1.1 percent as Germany’s DAX Index surged 3 percent, the biggest gains since Dec. 20 for each. Brazil’s Bovespa index increased 1.9 percent as of 4 p.m. New York time. U.S., U.K. and other markets were closed today for the New Year’s holiday. French 10-year bonds fell for a fourth day, pushing yields nine basis points higher to 3.24 percent. The euro weakened against 13 of 16 major peers. Gold rose.

Germany’s purchasing managers index climbed to 48.4 last month and a manufacturing gauge for China increased to 50.3, according to reports by Markit Economics and the Beijing-based logistics federation. Data later this week may indicate U.S. factory output and growth in 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.”

European Markets

Almost 15 shares rose for every one that fell in the Stoxx 600, with 230 of the index’s stocks unchanged. RWE AG, Germany’s second-largest utility, jumped 5.3 percent after Cheuvreux included it in its selected list of stocks for 2012. Veolia Environnement SA, the world’s biggest water utility, climbed 5.5 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.

France’s CAC-40 Index climbed 2 percent and benchmark indexes in Portugal and Italy increased at least 1.8 percent.

Equities and commodities last week capped their worst annual returns since the U.S. financial crisis in 2008 amid concern Europe’s government debt crisis will weigh on global growth. The Stoxx 600 lost 11 percent in 2011, the MSCI Asia-Pacific Index slid 17 percent last year and the MSCI All-Country World Index fell 9.4 percent.

Unchanged Close to 2011

The Standard & Poor’s 500 Index closed virtually unchanged, ending 2011 at 1,257.60 compared with its 2010 close of 1,257.64. The benchmark gauge of U.S. equities had the second-best return of 24 developed markets, trailing only a 0.6 percent gain in Ireland’s gauge.

The direction of the S&P 500 in January has correctly foreshadowed whether stocks end the year higher or lower in 60 of the last 83 years, or about 72 percent of the time, according to an e-mail yesterday from Howard Silverblatt, senior index analyst at S&P. Direction on the first day matched the year-end 49 percent of the time, Silverblatt said, “so there is no help there.”

The yield on two-year French notes rose four basis points to 0.85 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, Italian Bonds

German bonds declined for the first time in five days, pushing 10-year yields up eight basis points to 1.91 percent. The country will auction 5 billion euros of bonds due in 2022 on Jan. 4. Italian 10-year bond yields fell 19 basis points to 6.92 percent, narrowing their spread with the benchmark German bunds to 501 basis points from 528 basis points last week.

The euro fell the most against the New Zealand, Australian and Canadian dollars, losing at least 0.4 percent. It declined 0.2 percent to 99.42 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.

“The road 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 Bovespa stock index advanced after sliding 18 percent in 2011. Homebuilder Gafisa SA climbed 8.7 percent to help lead gains by companies that depend on domestic demand.

Chile, Mexico

Chile’s IPSA stock index slipped 0.5 percent today after a 15 percent tumble in 2011. Empresas Copec SA, the nation’s biggest publicly traded company by sales, fell 1.8 percent after a wildfire destroyed one of its plywood plants and halted operations at pulp-producing and milling operations.

Mexican stocks advanced, sending the benchmark Bolsa index up 0.7 percent. Equity markets in China, Russia, Malaysia, South Africa and Thailand were also closed for holidays.

The dollar climbed at least 0.3 percent against the euro, Danish krone, British pound and Swedish krona, and was little changed versus 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.

Gold Climbs

Gold touched the highest level in a week on reports that Iran produced its first nuclear fuel rod, spurring investors to buy the precious metal as a haven. Bullion for immediate delivery gained as much as 3.2 percent to $1,613.40 an ounce in London, the highest level since Dec. 26, before trimming its gain to 0.2 percent and trading at $1,566.27.

Milling wheat futures rose for a 12th day in Paris, the longest rally for the most-active contract since the grain started trading in the French capital in 1999, amid concern dry weather will hurt grain crops in South America.

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