European stocks rise on euro zone data as sanctions hit Russia

17:11 • 24.07.14
Economy

European stocks hit 2 1/2-week highs and the euro rallied from eight-month lows against the dollar on Thursday after the region's private sector expanded at its fastest rate in three months in July, Reuters reported.

Russian debt insurance costs rose after European Union leaders proposed sanctions on Russian banks which are majority-owned by the government. Those measures were proposed after a Malaysian Airlines plane was downed over Ukraine last week, killing 298, possibly by a missile furnished by Russia.

European stocks .FTEU3 rose 0.4 percent and the euro EUR= hit the day's highs at $1.3484, pulling off eight-month lows, after Markit's Composite Purchasing Managers' Index (PMI) of companies across the euro zone, a good early indicator of overall growth, rose to 54.0 in July from 52.8, its highest since April. Any number above 50 indicates expansion.

The services sector across the 18-member bloc performed better than any of the 39 economists polled by Reuters had forecast. Manufacturers also reported a stronger month than the median Reuters forecast had predicted.

"The activity data offsets some of the weakness we saw last month and that has helped the euro," said Geoff Yu, a currency strategist at UBS.

The dollar index .DXY dropped from an earlier six-week peak, although the US currency hit a one-week high against the yen at
101.64 JPY=.

Russia's five-year credit default swaps rose 17 basis points to 214 bps from earlier on Thursday, according to Markit, following the EU sanctions proposals, which the EU said were likely to be adopted next week.

That means it costs $214,000 a year for five years to insure $10 million of Russian debt against default. Russian government bonds fell.

"If the Europeans do manage to pass some of the new sanctions that are being talked about, and it's a big if, then it really would be a big step for Europe," said Viktor Szabo, portfolio manager at Aberdeen Asset Management.

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