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European stocks firm as France awaits government

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(Globalpost/GlobalPost)

Europe's main stock markets firmed during trading on Tuesday, with eurozone attention focused on the expected appointment of a new government in France.

In London, traders were catching up after a long-weekend. Meanwhile the euro gained slightly on the dollar.

Wall Street opened on a slightly upbeat note.

In Paris, the CAC 40 index rose 0.73 percent to 4,373.68 points just hours before the expected announcement of a new government.

The country was plunged into crisis by the collapse of the government on Monday, provoked by a speech by Economy Minister Arnaud Montebourg attacking French, German and eurozone budget policies.

Analysts at Saxo Banque in Paris said that "so far, the financial markets continue to give France the benefit of the doubt on its commitment to reform".

On Monday, the CAC 40 surged by 2.10 percent despite the crisis, supported by signs the European Central Bank is considering injecting cash into the eurozone economy to ward off any threat of deflation.

In London, the FTSE 100 index was ahead by 0.41 percent from the closing level on Friday to 6,802.96 points while in Germany, the DAX 30 was up 0.24 percent to 9,533.43 points in early afternoon trading.

In New York, the Dow Jones Industrial Average inched up 0.06 percent in opening trading, and the tech-rich Nasdaq gained 0.14 percent.

On Monday, the S&P 500 closed at a new record high of 1,997.92 points, just short of the watershed 2,000-level.

- France sends policy message -

President Francois Hollande's decision to dissolve his government was seen as a bid to restore political order after a public row in his cabinet over how to cure the eurozone's ailing second-largest economy.

Analysts said it was also meant top show France's main ally in the European Union, Germany, as well as to the European Commission and ECB, that debt-laden Paris is committed to fiscal discipline.

But the markets were affected more by ECB signals that it could start possible quantitative easing in a bid to stoke growth and ward off deflation.

"It's one of those modern day truths that markets react more to what central banks might do, than to political considerations or uncertainties," said analyst Michael Hewson at trading firm CMC Markets.

"Markets at the moment are more interested in the change of tone from (ECB head) Mario Draghi at Jackson Hole last week, with respect to the prospect of further measures to help boost the economy in Europe.

"The prospects for further measures will be tested later this week with the release of the latest unemployment numbers and inflation figures, which are expected to reinforce the narrative of a looser for longer monetary policy."

Sentiment was also bolstered by weekend comments from Federal Reserve head Janet Yellen on the bank's monetary policy.

She told the bank's annual symposium that despite a sharp fall in joblessness there was "considerable uncertainty about the level of employment".

- Euro creeps higher -

Currency markets continued to weigh the comments, which traders interpreted as indicating could mean the Fed might raise interest rates sooner than had been expected.

In foreign exchange trading on Tuesday, the European single currency firmed to $1.3196 from $1.3193 late in New York on Monday.

Against sterling, the euro was almost flat at 79.58 pence from 79.57 pence late in New York on Monday, while the pound firmed to $1.6586 from $1.6579.

The Swiss franc edged down to 1.2084 to the euro having reached 1.2071 on Monday, the highest level since January 2013.

The franc was steady against the dollar at 0.9154.

The yuan closed at 6.1531 to the dollar from 6.1640 on Monday.

The price of gold climbed to $1,286.50 an ounce, from $1,277.25 on Friday on the London Bullion Market.

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http://www.globalpost.com/dispatch/news/afp/140826/european-stocks-firm-france-awaits-government