May 19, 2024

Markets Jump on Hopes for European Action

Stock and bond markets rallied on hopes that the E.C.B. would cut the benchmark interest rate for euro countries as early as next week. On Wall Street, the Standard Poor’s 500-stock index, the Dow Jones industrial average and the Nasdaq composite index all closed with gains of more than 1 percent, while the 10-year Treasury bond yield touched 1.645 percent, the lowest intraday level since Dec. 12.

Separately, the Dow Jones industrial average skidded more than 150 points briefly in mid-afternoon before recovering after the Twitter account of The Associated Press was hacked and a fake tweet about an attack on the White House was posted.

But outside of trading rooms, the European data were not likely to inspire any joy.

Besides pointing to continued decline in the euro zone economy, the survey of purchasing managers by Markit, a research firm, showed that Germany could be slipping into recession.

Germany has served as the main counterweight to economic malaise elsewhere in the euro zone, and a prolonged slowdown could delay a recovery on the whole Continent.

The Flash Germany Composite Output index issued by Markit fell to 48.8 in April from 50.6 in March, a six-month low. A reading below 50 is considered a sign that the economy is likely to contract. For the euro zone as a whole, the corresponding index was unchanged at 46.5, confirming that the region remains in a rut.

The German economy shrank 0.6 percent in the last three months of 2012. Another negative quarter would push the country into recession and present a problem for Chancellor Angela Merkel as her party campaigns to remain in power in elections this autumn. Meanwhile, the stubborn slowdown in the euro zone is likely to further inflame the debate about how much more austerity troubled countries in Europe can take.

Many political leaders are arguing for a greater emphasis on growth. José Manuel Barroso, president of the European Commission, said in Brussels on Monday that while countries need to continue cutting government debt and budget deficits, ‘’we need to complement this with proper measures for growth.’’

In Europe’s most troubled countries, there was little sign of a turnaround in growth. Economic activity in Spain declined 0.5 percent in the first three months of this year, the Bank of Spain said in a preliminary estimate Tuesday.

Still, markets cheered the pessimistic survey results because of expectations that they would prompt the E.C.B. to cut interest rates or take other action when its policy-making board meets May 2.

On Tuesday, the central bank of Hungary, which is not a member of the euro zone, cut its main interest rate to 4.75 percent from 5 percent. It was the bank’s ninth rate cut in as many months.

The benchmark French stock market index, the CAC 40, finished the day 3.6 percent higher, while the interest rate on France’s 10-year sovereign bond hit a record low of 1.706 percent. Other major European stock indexes posted gains of more than 2 percent while bond yields fell.

For France, the Markit output index rose to 44.2 in April from 41.9 in March, indicating that the pace of decline was slowing in the euro zone’s largest economy after Germany’s. But that tidbit of good news was clouded by a drop in the separate Insee indicator of the French business climate.

The decline in optimism among German purchasing managers might be the result of a deceleration in the pace of growth in China, which in recent years has become one of the most important markets for German products like automobiles and machinery. China has helped to compensate for weak demand in the rest of Europe.

‘’The last nine months have been very slow in our business,’’ said Joachim Schönbeck, a member of the management board of SMS Group, a German company that builds and equips factories to produce steel and other metals.

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