Sun, May 28, 2006 - Page 10 News List

Resource stocks support extended European recovery


European shares rallied for a second session on Friday, as markets extended a climb back from two weeks of inflation-inspired losses. Resource stocks supported the market as consolidation moves put the steel sector back into the spotlight.

The UK FTSE 100 index gained 2 percent to 5,791, the German DAX Xetra 30 index advanced 1.4 percent to 5,788 and the French CAC-40 index increased 1.9 percent at 5,045.

US markets were off to a good start on Friday, helped by benign core inflation data, which if sustained would represent a third straight day of gains.

Markets have recorded steep losses and sharp volatility in recent weeks, with European markets giving back nearly all the gains made this year as investors worried that US interest rates would go higher than originally expected.

Still, after two days of gains, the first phase of the European selloff may be over, equity strategists at Bear Stearns said in a note to clients.

"In our view, the market will remain volatile over the coming weeks while we come to terms with the weak US dollar, the probability of higher rates than previously thought, and the deceleration of European lead indicators," these strategists said.

Resource stocks provided impetus in Europe after steelmaker Arcelor, fighting off a hostile bid from Mittal Steel, agreed to a deal with Russian steelmaker Severstal in what the companies said would create the world's leading steelmaker.

Arcelor shares slipped 3 percent, while Mittal Steel rose 2 percent. Other steelmakers rose, with Germany's ThyssenKrupp up 4.8 percent and Corus gaining 3.4 percent.

European exchanges were among notable movers again, after Credit Suisse upgraded Germany's Deutsche Boerse and Euronext to outperform from underperform, while cutting the London Stock Exchange to underperform from neutral.

German shares gained 6.2 percent, Euronext added 5.1 percent and the LSE shrugged off early losses to trade up 5.7 percent.

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