European markets at two-month high


European equities scaled two-month highs today, drawing support from policy measures to battle the euro zone crisis and expectations of more to come, but weak Chinese data kept a lid on gains.

Factory activity in China's private sector shrank at its fastest pace in seven months in June, data showed today, dampening prospects for European companies which are increasingly looking abroad for earnings growth as the region's domestic economy stumbles.

The silver lining for equities is that weak data could galvanise policymakers into action to stimulate the economy. The European Central Bank is widely seen cutting interest rates at this week's meeting.

With European leaders unexpectedly agreeing on bold initiatives at the end of last week, including allowing the euro zone's ESM bailout fund to inject money directly into stricken banks, that could provide enough of a boost to turn some investors more upbeat on the region's unloved stock markets.

"I would not say it's a real game changer but it gives the market some breathing space over the next couple of weeks," Gerhard Schwarz, equity strategist at Baader Bank, adding that bearish positioning left the market open to further gains, though with caveats.

"The data out of Asia certainly is still showing that, in particular in China, sentiment is deteriorating ...It is an environment where only the flexible investors are able to make money, so a lot of long only investors will be sitting on the sidelines."