Wall Street advanced on Friday after better-than-expected US retail sales data offered a ray of light in the gloom and helped European markets extend sharp gains, bolstered by a short-selling ban.Dealers said the US data suggested the economy might not be in such bad shape after all, reassuring nervous investors trying to get ahead of the curve after trillions of dollars have been lost in the mayhem of the past few weeks.In New York, the blue-chip Dow Jones Industrial Average was up 1.74 percent to 11,337.02 in late morning trading, while the broader S&P 500 rose 1.23 percent to 1,187.02 and the tech-heavy Nasdaq Composite added 1.15 percent to 2,521.27.
US retail sales rose 0.5 percent in July after a gain of 0.3 percent in June as consumers -- who account for some two thirds of the economy -- spent more on fuel and snapped up electronics and appliances, official data showed.Barclays Capital analyst Peter Newland said the data were "a strong start" for the third quarter that should translate into solid growth.
"Alongside a likely further boost to auto sales, real consumption growth should be significantly stronger in the third quarter than the second," he said.
Paul Dale at Capital Economics said the figures reinforced hopes that the US economy would pick up in the third quarter after virtually stalling in the second and so avoid slipping back into recession.The US sales data also helped pull up European shares.
London's FTSE 100 ended the day up 3.04 percent at 5,320.03 points, Frankfurt's DAX climbed 3.45 percent to 5,997.74 points and the CAC 40 in Paris jumped 4.02 percent to 3,213.88 points.
In Italy, which announced plans for 45 billion euros ($64 billion) in new austerity measures, the FTSE-MIB surged 4.0 percent to 15,888 points.Madrid's Ibex-30 rose 4.82 percent to 8,647.3 points.
European markets recovered from a weak start as a short-selling ban in France, Italy, Spain and Belgium took the pressure off the banks which have been especially hard hit by rumours about their financial health given their exposure to debt-laden eurozone states such as Greece.Germany upped the ante by calling for a Europe-wide ban as "the only way to tackle destructive speculation convincingly."The move echoes steps taken at the height of the global financial crisis sparked by the collapse of Lehman Brothers in 2008.Dealers were sceptical that the ban would have any long-lasting effect given the deep underlying economic and debt problems in the United State and Europe which some fear could produce a new recession.
Jane Foley at Rabobank said the US experience in 2008 was that such bans were not really enough to tame markets in a panic, adding that the gains could not mask the underlying tensions over the eurozone debt crisis.Short-selling is when an investor gambles a share price will fall, agreeing to sell a stock at its existing price even before he actually owns it.
If the price then falls, the investor can buy the stock at the lower price just before agreed delivery to the buyer and pocket the difference.
Conversely, if the price rises, the short-seller then has to rush in and buy the stock before it goes too high and increases his losses, with such 'short squeezes' adding hugely to market volatility.Supporters claim short-selling allows investors a hedge against risk but critics say it only adds to the downward pressure in falling markets and serves no real purpose beyond speculative trading for short-term profit.
The European Securities and Markets Authority said the short-selling ban was to "restrict the benefits that can be achieved from spreading false rumours."
Dealers said that whatever was done on the regulatory side, there was little the authorities could do about the underlying poor economic fundamentals which the debt crisis only makes worse.Anita Paluch, a trader at etxcapital, noted that the Frankfurt DAX index "has lost over 1,000 points (so far this month) ... as the fear over world economic growth spreads and confidence in the political leadership suffers massively."
In Paris, a dealer at Aurel BCG said there was some buying in the banks after their huge recent losses but investors were spooked by figures showing a sharp slowdown in French growth in the second quarter.The data confirmed a widely held fear -- slow economic growth means European countries will not be able to stabilise their public finances despite taking tough austerity measures.On that basis the eurozone debt crisis, and similar problems in the United States, look to have a long way to go before being resolved.
Yields on eurozone bonds fell slightly, with those on French 10-year bonds dropping below three percent level for the first time since November to 2.979 percent.
On the currency markets, the euro firmed to $1.4250 from $1.4224 late Thursday in New York while the dollar drifted down to 76.76 yen from 76.81 yen the previous evening.
Gold, the traditional safe haven in times of trouble, slipped to $1,736 an ounce from Thursday's close at $1,760, after having a record high above $1,800 earlier in the week.
In Asian trade earlier Friday, markets were mixed as early gains were eroded, reflecting the pattern of past weeks of wild swings as jittery investors followed the latest short-term lead.