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Markets soar as eurozone economy stabilises

By AFP

European stock markets and the euro currency soared on Friday as a survey showed the eurozone economy stabilising in August, boosting hopes that Europe is gradually emerging from the crisis.

The closely-watched eurozone's purchasing managers' index (PMI), compiled by data and research group Markit, rose to 50 points in August from 47 points in July -- a level not seen since the crisis reared its ugly head last year.

This initial estimate of the August figures is right on the boom-bust line of 50 points -- a score below 50 indicates business contraction among the 16 nations that share the euro currency, while above 50 points to growth.

"The data are signalling that the unprecedented downturn has been followed by an historically rapid rebound that positions the eurozone to post growth... in the third quarter," said Rob Dobson, senior economist at Markit.

However "rising job losses and the continued need for widespread and deep price discounting remain concerns looking ahead, as a sustained recovery in demand is necessary if the emerging rebound is to gain traction," he added.

Investors and analysts responded enthusiastically to the news, which followed data earlier this month showing eurozone heavyweights France and Germany emerging from recession, and Europe's main stock markets jumped up.

London's benchmark FTSE 100 index of leading shares rallied 1.92 percent to 4,847.76 points in late afternoon trade, while Frankfurt's DAX 30 was up 2.64 percent and the Paris CAC 40 gained 3.09 percent.

On the foreign exchange market, the news helped the European single currency climb above 1.43 dollars to some 1.4322 dollars by 1300 GMT, well up from 1.4251 dollars in New York late on Thursday.

The survey results are the latest in a string of encouraging news for Europe's economy.

Last week, the EU's official Eurostat data agency announced that the eurozone's trade surplus doubled in June to 4.6 billion euros (6.5 billion dollars).

Earlier this month, Germany and France led a surprise rebound out of recession, helping drag the 16-nation eurozone very close to positive territory.

But David Henry, economist at the London-based Centre for Economics and Business Research, warned that the economic resurgence of France and Germany could divide the eurozone.

"The strength of the French and German economies relative to the eurozone as a whole indicates that there is a significant divide forming between the economies which make up the eurozone," he cautioned.

"If this divide continues to build, it will put added pressure on the euro, which is already being seen in the differing yields for the euro-denominated government debt from the various eurozone nations."

Overall Friday's PMI figures were welcomed by analysts, although no one was predicting that Europe is totally out of the recession woods.

The survey results signalled an "imminent return to growth" for James Ashley of Barclays Capital.

but Jean-Christophe Caffet, eurozone economist for French investment bank Natixis, predicted activity would slow again from the second half of 2010 as national stimulus packages tail off and unemployment levels rise.

"The eurozone economy could fall into recession again at the end of next year," Caffet warned.

The separate PMI index for the eurozone's vast service sector also gained ground, up to another 15-month high of 49.5, a major rise from the 45.7 points posted in July.

The struggling manufacturing sector also saw an improvement, with its index rising to 47.9 from 46.3 in July.

The headline composite PMI figure has improved in each of the past six months, after hitting a record low of 36.2 points in February.

August's jump of three points from 47 to 50 was also the biggest since the survey began and significantly higher than the 48.3 point level predicted by analysts polled by Dow Jones Newswires.

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