The UK's economy is resilient enough to absorb the shock of a terrorist attack on its transportation system, economists said, a sentiment seen on Friday as markets throughout Europe shrugged off much of their losses from a day earlier.
Traders were unwinding the "safe haven" moves they had made a day earlier upon news of the explosions, said Phillip Shaw, chief economist at Investec in London.
The FTSE 100 closed 1.4 percent higher at 5,232, around its level before the blasts on Thursday. The index had closed at 5,229.6 on Wednesday. Germany's DAX was up 1.5 percent at 4,597.97, and in Paris, the CAC 40 benchmark was up 1.9 percent to 4,300.31.
"Although I think we will see more volatility today, I can't help feeling that the worst is over for now," said Tom Hougaard, chief market strategist at City Index. "We had an ugly day which will be with us forever, but the markets are intact and look defiant."
Economists pointed to the adaptability of the US and Spanish economies after the Sept. 11, 2001, terrorist attacks and the train blast in Madrid last March as encouragement for the UK. A key factor in both those recoveries was that the attacks were not followed by more.
The British pound, sent to a 19-month low on Thursday, fell even further on Friday to US$1.7310 before rebounding a bit to US$1.7342 -- still down from US$1.7425 in late New York trading a day before.
Analysts said the hit to consumer confidence would be problematic because the British economy had already been showing signs of slowing. Major retailers have reported poor sales since the end of last year and the previously buoyant housing market showed signs of heading for a slump. In the first quarter of this year, growth in the UK lagged the euro region for the first time since 2001.
Sentiment in Europe was helped by positive trade on US markets, as Wall Street rallied after a solid if unspectacular report on job growth and upbeat earnings from Alcoa, an aluminum group.
In Europe, the sharp falls on Thursday were seen by many traders as a buying opportunity.
Analysts at SG Securities in Paris advised their clients that "equity markets are cheap indeed."
"If there is no further major attack in the short-term, this event may transform itself into a buying opportunity," they said.
In Paris, the more positive mood was enhanced by the initial public offering of gas utility GDF, which closed 22.84 percent higher at 28.50 euro.
The part privatization of the group, which saw the French government sell a 20 percent stake, was almost 30 times oversubscribed.
In London, many of the leisure and travel stocks hardest hit yesterday bounced back immediately.
Interest in oil stocks was also strong following the rebound in crude prices.
Crude oil prices rocketed back beyond US$61 after falling briefly following the terrorist bombings in London.
On other markets, the Italian MIB closed 1.81 percent higher at 32,769 points, the Spanish IBEX-35 finished up 1.54 percent at 9,793.2, and the Dutch AEX was 1.25 percent higher at 388.60.
The Swiss SMI gained 0.99 percent to 6,312.2, while the Belgian BEL-20 closed up 0.55 percent at 3,107.01.
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