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FTSE tests 5,500 on strong German growth

FTSE tests 5,500 on strong German growth

European markets have started to move tentatively up following strong GDP numbers from Germany.

The latest figures on German growth show the country remains the powerhouse of the eurozone, and that it avoided a recession in the first quarter of 2012.

Britain’s FTSE 100 index added 0.49%, or 27 points, to 5,493 by 8.55am and the Mid-250 index took on 0.56%, or 60 points, to 10,874. See the FTSE’s performance and the index’s top risers and fallers.

However 10-year bunds continued to fall despite the rise in equity markets, showing that investors are still nervous about a Greek exit from the single currency zone, political unrest in Athens as well as instability in the Spanish and Italian financial systems.

While the German economy beat analysts' forecasts of 0.1% growth to expand 0.5% in the first quarter, overnight Moody’s downgraded more than a dozen of Rome's lenders, citing recession concerns and rising bad debts.

Shavaz Dhalla, financial trader at Spreadex, said: ‘Bears seem to be resisting any substantial gains as traders brace themselves for a possible double-dip recession as preliminary GDP figures from the eurozone are due later this morning.

‘However, any early gains in European trading could be extinguished later today as retail sales from the US are due.  Economists are expecting a slowdown in sales and the weakest advance in four months.’

European stock markets also rallied to recover lost ground: Germany’s DAX index rose 0.45% to 6,481, France's CAC 40 index was up 0.75% to 3,082, and the FTSEurofirst 300 index of top European shares ticked ahead 0.56% to 1,009.

Security company G4S (GFS.L) rose to the top of the FTSE 100 index, up 8.3p, or 3.1%, to 275p as revenues grew 7.5% in the first quarter of 2012. A further boost to growth is expected from the London Olympics this year.

Citywire Top Stock Afren (AFR.L) took on 3.3p, or 2.7%, to 124p as its first-quarter production met expectations by rising to over times higher than a year ago. The group reports that it is on track to produce 46,000 barrels of oil equivalent a day by the end of the year.

British Airways owner, International Consolidated Airlines Group (ICAG.L), slipped 1.6p, or 1%, to 158p, as analysts at JP Morgan cut their rating from ‘overweight’ to ‘neutral’.

3.13 Wall Street declined on Monday, sending the Dow Jones Industrial Average to the lowest level since January, as Greece struggled to form a new government amid growing speculation the nation may exit from the single-currency euro.

The Dow Jones dropped 125 points, or 0.98%, to close at 12,695. The Standard & Poor's 500 Index lost 15 points, or 1.11%, to 1,338. The Nasdaq Composite Index fell 31 points, or 1% percent, to 2,903.

According to the reports, Greek president will continue talks on forming a coalition government, although Socialist leader Evangelos Venizelos said on Monday he was not optimistic that a government could be formed.

Adding to the political upheaval in Europe, German Chancellor Angela Merkel's Christian Democrats suffered a crushing defeat on Sunday, which could encourage the opposition to intensify attacks on her austerity policies.

Meanwhile, China's move on Saturday to cut the bank reserve ratio, normally seen as a pro-growth move, suggested the country may be facing more significant hurdles.

Financial and energy stocks were the day’s biggest decliners. JP Morgan lost 3.2% as the bank announced the exit of a top executive after suffering trading losses that could reach $3 billion or more. Bank of America fell 2.7%.

In the energy sector, Exxon Mobil Corp lost 1.2%. InterOil shed 6.7% after the company said it received a letter of intent from the government of Papua New Guinea to scrap a planned liquefied natural-gas project agreement.

On the positive side, Groupon Inc’s shot up 13.5% in extended trading after the daily deal company posted its first quarterly profit. Yahoo gained 2% after the company said chief executive Scott Thompson will resign in the wake of controversy over his academic records. Chesapeake Energy climbed 4.8% after a reported the natural-gas company expects activist investor Carl Icahn to disclose soon that he has taken a significant stake in the company.

In deal news, Avon Products added 3.8% after the company said on Sunday it would consider Coty Inc’s $10.7 billion takeover bid.

In Asia, equities declined amid Greek worries and Moody’s Investors Service downgraded Italian banks ahead of a report that may show Europe’s economy contracted.

The MSCI Asia Pacific Index fell 1% to 117 as of 11:01 a.m. in Tokyo. Japan’s Nikkei 225 Stock Average shed 1.3% and Australia’s S&P/ASX 200 Index slid 1%. South Korea’s Kospi Index retreated 1.5%. Hong Kong’s Hang Seng Index fell 0.3% and China’s Shanghai Composite Index declined 0.7%.

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