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Shares and euro mark February with surge higher

Shares and euro mark February with surge higher

Stock markets roared ahead on the first day of February, brushing aside a couple of days of weakness that couldn’t prevent the FTSE 100 from finishing its best January for 15 years.

Though economic data out of China hadn’t been quite what the markets were expecting, signs of improvement in the eurozone economy were enough to help the FTSE 100 up 0.6% to 6,313 and the Eurofirst 300 0.5% higher.

The euro also rose strongly, up 0.5% to $1.3647, after the Markit purchasing managers' index (PMI) showed that eurozone manufacturing activity contracted at the slowest rate for 11 months in January. This, said IHS economist Howard Archer, ‘adds to evidence that eurozone economic activity turned the corner in late-2012’.

The gains, which were shared by most Asian markets, came despite China’s official manufacturing PMI unexpectedly dropping to a reading of 50.4 in January compared to a reading of 50.6 recorded in the previous month.

Conversely, a rival PMI report for China published by HSBC showed manufacturing sector growth rose to a two year high in January, at 52.3.

Despite the conflicting data, economists said China's economic recovery is continuing, while casting doubt on the accuracy of data published close to the Chinese New Year holiday. ‘Overall, we believe the manufacturing sector is still on the path of steady expansion’, said Jun Ma of Deutsche Bank.

The move higher also comes in contrast to the stock market torpor often found on the morning before the release of the US non-farm payrolls report, a key gauge of US economic strength, which is due this afternoon. January's labour report, which is published alongside data on manufacturing, is expected to show a modest improvement from December.

Market commentators continue to question when the stock market exuberance will be halted by a full-blown ‘correction’ after the FTSE 100 rose by 379 points or 6.4% in January. Even bullish fund managers have warned that investors are getting complacent in the face of continuing global economic weakness.

BT leads London blue chips

In London though, BT (BT.L) led the FTSE higher, with shares up 4.7% to 260p after announcing better-than-expected third quarter earnings and telling investors it would be undergoing a group-wide restructuring.

Lonmin (LMI.L) shares continued to move higher on the mid-cap FTSE 250 index, adding to gains yesterday after the South African miner said platinum production in the last three months of 2012 had ‘substantially exceeded our planned ramp up’. The shares, which remain down 32% year to date, rose by nearly 5% today, to 376p.

Conversely, Tate & Lyle (TATE.L) shares dropped after reporting third quarter profits that were in line with expectations, marred by a cautious outlook. ‘Despite facing a number of headwinds and before the impact of exchange rate movements, we expect to make modest progress this financial year,’ the company said in a statement.

Royal Dutch Shell (RDSb.L) fell for a second day, down 0.6% to 2,281p after UBS cut its rating on the shares to ‘neutral’ from ‘buy’. UBS analyst Jon Rigby said after Shell’s earnings disappointed the market yesterday, there was ‘no near term prospect of an improvement in the main drag on performance – the North American upstream business.’

BT, Shell and Tate & Lyle are all Citywire Top Stocks.

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