European stock exchanges advanced yesterday, overcoming Spanish deficit worries late in the day on news of a better-than-expected rise in US industrial output.
The gains in Europe followed a strong showing on Asian markets, where momentum was driven by rising oil prices and optimism over global economic prospects.
In London the FTSE 100 index added 0.39 per cent to close at 5,237.92 points, while in Paris the CAC 40 also rose 0.39 per cent at 3,675.93 points. The Frankfurt DAX added 0.26 per cent to finish at 6,190.91 points.
Investors welcomed a report from the Federal Reserve showing that US industrial production rose to a nine-month high in May, gaining 1.2 per cent after 0.7 per cent in April and beating market expectations of an 0.8 per cent rise.
But there was also negative news from Washington.
US housing starts and building permits plunged in May, after the expiry of federal tax breaks, the Commerce Department said in a worse-than-expected report on the battered housing sector.
The number of new housing construction projects slumped 10 per cent to 593,000, the lowest level this year, and permits fell 5.9 per cent to a one-year low of 574,000.
"The market will be inclined to read the disappointment as an issue of the housing market not being able to sustain itself without government stimulus," the Briefing.com analysts said.
In Europe, however, investors focused instead on the industrial output report and the continued stability in the euro, which edged up to $1.2335 from $1.2327 late last Tuesday in New York.
"The market picked up in the middle of the afternoon, encouraged by the good performance of the euro, which helped overcome disappointment with the US housing figures," a Paris share trader said.
On Wall Street the disappointing housing data combined with concerns about the financial health of Spain depressed sentiment.
The Dow Jones Industrial Average was down 0.18 per cent at mid-day at 10,385.80 while the tech-heavy Nasdaq had given up 0.06 per cent to reach 2,307.30.
"With rumours on Spanish bank funding problems and weaker-than-expected US housing data, the risk theme is developing with ... equities lower and spreads to German debt higher," said Andrew Busch at BMO Capital Markets.
Perceptions of greater risk in the global economy tend to encourage investors to shun stocks for safer instruments, such as certain government bonds.
Spanish press reports said the International Monetary Fund was working with the European Union and Washington on a rescue plan for Spain, plagued by big public deficits and credit difficulties confronting its banks, worth up to €250 billion.
The plan would use money from a special-purpose fund worth up to €500 billion put in place last month to help eurozone nations that run into Greek-style debt problems, the reports added.
But the IMF, the European Commission and the Spanish government denied that any bailout was in the works, with the EU dismissing suggestions to the contrary as "rubbish".