LONDON (Dow Jones)--European stocks are expected to open higher Friday, benefiting from stellar performances on Wall Street and Asian share markets overnight, after U.S. gross domestic product data surprised to the upside and showed that the world's largest economy returned to growth in the third quarter, recording an annualized growth rate of 3.5%.
With the Dow Jones Industrial Average closing 200 points higher Thursday, European markets are expected to find further support at the open, although once again there seems to be a degree of disbelief as to the extent of the confidence being shown right now, said Ben Potter, research analyst at IG Markets.
"There is plenty of scepticism about the GDP figure, as it has been boosted by the economic stimulus packages such as the 'cash-for-clunkers' program and the first home buyer's grants. Admittedly, the U.S. move out of recession yesterday came in at the top end of expectations, but there are still dark clouds looming with data points such as the U.S. weekly jobless claims coming in worse than expected after showing only a very modest improvement. Whether the pace of the rally can be sustained remains to be seen," Potter said.
Nevertheless, Potter expected London's FTSE 100 index to open 26 points higher at 5164, Frankfurt's DAX index up 19 points at 5606, and the CAC-40 index in Paris 16 points higher at 3730.
"The question everyone is asking is at what price do the institutions find this market too hard to resist? They're probably not going to buy just yet because they are nervous about further risks to the downside, having seen the amount of volume and conviction in the selling this week," added Potter.
On Wall Street Thursday, the DJIA closed up 2.0% to 9962.58, marking its biggest point gain since July 15 and its biggest percentage move since July 23. With the surge, the Dow is only 1.3% from its 2009 closing high of 10,092.19, hit on Oct. 19.
Among other measures, the Standard & Poor's 500 rose 2.2% to 1066.11, breaking a string of four straight losses. With one day left for October, the S&P 500 is up 0.8% for the month.
Earnings had little to do with the session's gains, as traders cheered the GDP figure. After early-week reports on housing, durable goods and consumer sentiment drove investors out of riskier assets, the GDP data helped drive traders back into stocks, commodities and other riskier assets.
"I don't think anyone was surprised it was a positive number, but it certainly took a little bit of this week's fear off the table as people were feeling pretty stressed," said Bernie McSherry, senior vice president with New York Stock Exchange floor broker Cuttone & Co.
The positive finish on Wall Street lent Asian markets support Friday, with the U.S. GDP data restoring some confidence in recovery prospects in the region following Thursday's losses.
Hong Kong's Hang Seng index was up 2.5% while China's Shanghai Composite was 1.2% higher. Japan's Nikkei 225 was up 1.4%.
"Still, some analysts were doubtful the gains would last. "The market doesn't seem convinced that today's recovery is the end of the downward correction," said Potter. "I wouldn't be surprised if we see further falls. The question will be what traders do in two or three days' time - will they continue to buy or sell the rally? My gut feeling is that they will sell it," Potter added.
In the European foreign exchanges, the increase in risk appetite continued to boost currencies like the euro early Friday. At 0720 GMT, the single currency was trading at $1.4827, up from $1.4822 late in New York. The dollar was slightly lower against the yen, down to Y91.06 from Y91.41.
Meanwhile, spot gold moved higher, trading at $1047.30 at 0720 GMT, up $15.92. In the oil market, crude oil remained steady after rising Thursday on hopes of a U.S. economic recovery. At 0720 GMT, Nymex December crude was down a cent from New York, at $79.86 per barrel.
Elsewhere, European bond markets opened steady, with little sign of the strength of the equity markets or the desire for risk resulting in more selling in the sovereign debt market. At 0720 GMT, the December bund contract stood at 121.26, up 0.05.
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