Markets solid as U.S. jobs report looms

LONDON - European markets brushed aside earlier losses in Asia to trade sharply higher Friday ahead of a key U.S. jobs report that may determine how fast the Federal Reserve reduces its monetary stimulus.

The nonfarm payrolls data for December, due an hour before Wall Street's open, have the potential to alter market expectations for the pace of the monetary withdrawal. The consensus in the markets is that U.S. employers added 196,000 jobs last month and that the unemployment rate remained at 7 percent.

At its December policy meeting, the Fed decided to reduce its financial asset purchases by $10 billion to $75 billion from this month partly because of sustained improvements in the U.S. labor market. Unlike many other central banks around the world, employment levels are a key component of the Fed's mandate.

"A good payrolls number will shift the markets attention to the Fed meeting at the end of this month and the potential for a further $10 billion of tapering," said Michael Hewson, senior market analyst at CMC Markets.

Analysts said it will be interesting to see how the markets react to the figures. For much of last year, investor sentiment was heavily dependent on tapering expectations. Many traders feared the prospect as much of the rally in global stocks over the past few years has been driven by the new money created by the Fed's policy. When tapering was officially launched, the response was negligible, partly because investors have accepted that it's due to an improvement in U.S. economic fundamentals - more growth is a recipe for share price gains.

Ahead of the figures, European markets were solid. Germany's DAX was up 0.8 percent to 9,499 while the CAC-40 in France rose 0.6 percent to 4,252. The FTSE 100 index of leading British shares was 0.9 percent higher at 6,749.

Wall Street was poised for a solid opening, with both Dow futures and the broader S&P 500 futures up 0.3 percent.

The gains in Europe and the anticipated advance in the U.S. come despite a more downbeat trading session in Asia, when investors were spooked by a report showing a slowdown in China's exports.

Japan's Nikkei closed with a slight gain of 0.2 percent to 15,912.06 while Hong Kong's Hang Seng rose by 0.3 percent to 22,846.25. South Korea's Kospi dropped 0.4 percent to 1,938.54 and the Shanghai Composite Index shed 0.7 percent to 2,103.30. India's Sensex rose by 0.3 percent to 20,783.99.

In other markets, the focus was also on the payrolls numbers and trading was subdued. Among currencies, the euro was down 0.1 percent at $1.3594 while the dollar rose 0.1 percent to 104.97 yen. In the oil markets, a barrel of benchmark crude was 94 cents at $92.60.