Chinese easing hopes shore up markets

An investor looks at the stock price monitor at a private securities company on July 4, 2012, in Shanghai, China.
AP Photo

(AP) LONDON - Markets were shored up Friday by hopes that China may back further stimulus measures to deal with a slowing economy, as well as a relatively smooth Italian bond auction despite a downgrade of the country's rating by Moody's.

In Europe, the FTSE 100 index of leading British shares was up 0.6 percent at 5,640 while Germany's DAX rose 0.7 percent to 6,466. The CAC-40 in France was 0.4 percent higher at 3,148.

The euro meanwhile was flat at $1.22.

Figures earlier showed that China's economy grew by only 7.6 percent in the second quarter from the same period the year before. That was down on the 8.1 percent recorded in the previous three-month period, it was more or less in line with market expectations. China also reported that retail sales and factory output growth slowed in June.

A slowdown in the Chinese economy is one of the main risks stalking the global economy, alongside Europe's debt crisis and the state of the U.S. economy. Booming Chinese growth over the past few years was one of the reasons why the world economy recovered from recession, albeit fairly anemically.

In recent weeks, the Chinese authorities have cut interest rates, lowered banks' reserve requirements to encourage lending and increased spend on infrastructure projects. More is now expected

"As with most China data, there is plenty for both optimists and pessimists; the former expect that China will now ease policy yet further, while the latter argue that this giant economy is still headed for a 'hard landing', with growth slowing markedly as the year continues,' said Chris Beauchamp, market analyst at IG Index.

Europe's single currency has foundered over recent weeks as Europe's debt crisis has veered from one crisis to another. A recent run of strong U.S. data and few signs that the U.S. Federal Reserve is willing to sanction another monetary easing anytime has also buoyed the dollar in recent days.

So far, markets have largely brushed off Moody's downgrade of Italy by a further two notches, which leaves the country's credit ratings just two notches above so-called junk.

A smooth bond auction from the eurozone's third-largest economy helped to cement the positive tone in the markets. Italy sold euro3.5 billion of three-year bonds at an average yield of 4.65 percent. That was sharply lower than the 5.3 percent it had to pay at a similar auction in mid-June when investors were acutely concerned about Greece's general election and the scale of the problems in Spain's banks.

Wall Street was poised for a modestly strong opening too, with Dow futures up 0.3 percent at 12,537 and the broader S&P futures up 0.4 percent at 1,334. The key highlight for the markets later will be the University of Michigan's closely-watched consumer sentiment index.

"Any boost from the Michigan sentiment survey would likely be well received," said Mike McCudden, Head of Derivatives at Interactive Investor.

Earlier in Asia, Japan's Nikkei 225 index was up 0.1 percent to 8,724.11 while Hong Kong's Hang Seng rose 0.4 percent at 19,094.40.

South Korea's Kospi gained 1.5 percent to 1,812.89. Australia's S&P/ASX 200 advanced 0.4 percent to 4,082.20 and China's Shanghai Composite was steady at 2,185.90.

Oil prices tracked equities higher, with benchmark oil for up 76 cents at $86.84 a barrel in electronic trading on the New York Mercantile Exchange.