By PAN PYLASAP Business Writer
LONDON (AP) - Hopes over the European economy coupled with a strong bounce-back in Japan's Nikkei stock index to shore up markets Tuesday, ahead of key U.S. retail sales data that could have a bearing on when the Federal Reserve starts to rein in its monetary stimulus.
The Nikkei's 2.6 percent advance buoyed stock markets across Asia and into the European session. European stocks and the euro received a further boost after figures showed industrial production in the eurozone rose by 0.7 percent in June from the month before, meaning output rose by 1.2 percent in the second quarter.
Coupled with a better-than-expected ZEW survey into German investor confidence in August, hopes are high that the eurozone will be confirmed to have emerged from recession when second-quarter figures are published on Wednesday. The eurozone has been in recession since the latter part of 2011 and the consensus in the markets is that the bloc's economy grew by a quarterly rate of 0.2 percent in the April-June period.
Ben May, European economist at Capital Economics, said the figures "provide further signs that the eurozone has emerged from recession."
That's a relief for investors as it provides an indication that the worst of Europe's debt crisis has passed. The euro was up 0.1 percent at $1.3310, having traded around the $1.3290 mark before the figures were released.
Germany's DAX was up 0.8 percent at 8,426 while the CAC-40 in France rose 0.3 percent to 4,084. The FTSE 100 index of leading British shares was 0.5 percent higher at 6,605.
Wall Street was poised for a solid opening, with Dow futures and the broader S&P 500 futures up 0.4 percent.
The main focus later will be July retail sales figures. Retail sales are particularly important as they account for around 70 percent of the U.S. economy. As such, the figures could have an impact on expectations of when the Fed will start to reduce its monetary stimulus. Most economists think that so-called tapering will start as soon as next month.
"If we see a poor figure today, it will only make it more difficult for the Fed to justify tapering in September as it would suggest the health of the consumer is not enough to support a sustainable recovery on its own," said Craig Erlam, market analyst at Alpari.
Earlier, Japan's Nikkei though was the standout performer, a day after disappointing second-quarter Japanese economic growth figures weighed on sentiment. The Tokyo benchmark closed 2.6 percent higher at 13,867 amid hopes that slower growth may prompt the country's policymakers to take further action to shore up the economy. The Bank of Japan has already embarked on a big monetary stimulus program to get inflation up and get Japan out of its two-decade stagnation.
On Tuesday, there was also speculation that the government may cut corporation tax alongside a planned increase in consumption tax.
Erlam said the increase in consumption tax "doesn't appear to be too major a concern to investors as long as it's accompanied by a cut in corporation tax, which could in theory encourage hiring, wage increases and investment."
Elsewhere in Asia, Hong Kong's Hang Seng rose 1.2 percent to close at 22,541.43 while South Korea's Kospi advanced 1.5 percent to 1,913.03. Benchmarks in Taiwan, Singapore, mainland China, Indonesia and the Philippines also rose.
Oil prices tracked equities higher, with the benchmark New York rate 71 cents at $106.86 a barrel.
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