U.S. service sector grows, Europe more optimistic

NEW YORK Tue Feb 5, 2013 11:03pm IST

A worker builds a single-family home as construction in a new subdivision is underway in San Marcos, California, January 30, 2013. REUTERS/Mike Blake

A worker builds a single-family home as construction in a new subdivision is underway in San Marcos, California, January 30, 2013.

Credit: Reuters/Mike Blake

Rajalakshmi (C), 28, smiles after winning the Miss Wheelchair India beauty pageant in Mumbai November 26, 2014. REUTERS/Danish Siddiqui

Miss Wheelchair India

Seven women from across India participated in the country's second wheelchair beauty pageant, which aims to open doors for the wheelchair-bound in modelling, film and television, according to organisers  Slideshow 

NEW YORK (Reuters) - The vast U.S. services sector expanded again last month, extending a three-year run of growth, while European business optimism hit an eight-month high, suggesting the euro zone economy was starting to recover.

Rising corporate confidence also helped China's services sector grow at its quickest pace in four months, providing more evidence of a gradual rebound in the world's second largest economy.

The data on Tuesday bolstered the view that things were looking up for the world economy, a sentiment that has lifted stock markets around the globe and pushed the U.S. benchmark S&P 500 to five-year highs.

"I think people are optimistic right now," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. "The view is you want to buy risky assets on good data and ignore the bad data."

While the Institute for Supply Management's service sector index eased slightly in January, it still showed the sector continued to grow for a third straight year.

A report from data analysis firm CoreLogic said U.S. home prices rose for a 10th straight month in December, with the year-on-year jump the biggest since May 2006.

HOPE AND WORRY IN EUROPE

The outlook in Europe was more subdued, though surveys on Tuesday offered evidence that the worst of the downturn in the 17-country euro zone may have passed.

Markit's Eurozone Composite PMI, based on business activity across thousands of companies, and a good gauge of economic growth, rose in January to a 10-month high of 48.6 from 47.2 in December.

While still below the 50 mark that divides growth and contraction, its rise in January was its third straight. Private industry makes up nearly two-thirds of the euro zone's economy.

Germany, the euro zone's biggest economy, took the lead, with the PMI chalking up its biggest one-month rise since August 2009 to soar to its highest level since June of 2011.

The reading for the bloc's second-biggest economy France, however, plummeted to its lowest in nearly four years, below readings from perennial laggards Spain and Italy.

"That's a really worrying sign. It's going to cause more tensions between Germany and France ... on various aspects of euro zone management," said Jennifer McKeown, economist at consultancy Capital Economics.

"France will continue to call for more supportive policy, not just for the periphery but the euro zone as a whole. Germany is taking a much more hard-line stance."

The euro zone economy probably contracted 0.4 percent at the end of last year, notching up its third negative quarter, and is likely to stagnate in the current period, according to a Reuters poll published last month.

BRITISH, CHINESE FIRMS SEE GROWTH

Activity rose among Britain's services firms, which account for more than three-quarters of gross domestic product.

"The UK services PMI has bounced back into growth territory, dampening fears over an unprecedented triple-dip recession being called," said James Knightley at ING.

After only one quarter of expansion, Britain's economy contracted again at the end of last year. That put it on the brink of its third recession in four years.

In China, the HSBC services purchasing manger's index rose to 54 last month, with service sector firms confident about the future.

The business expectation index -- one of many accompanying sub-indices that do not contribute to the overall PMI business activity reading for the services sector -- rose to its highest since May 2012 at 64.4.

"China's growth recovery is now on a firmer footing," said Qu Hongbin, a HSBC economist. "Solid job gains plus higher business expectations bode well for further improvement of the services sector's growth."

(Additional reporting by Olesya Dmitracova and Jonathan Cable in London; Editing by Chizu Nomiyama)

REUTERS SHOWCASE

WTO Trade Deal

WTO Trade Deal

WTO clinches first global trade deal in its history  Full Article 

Kashmir Attack

Kashmir Attack

Ten dead in Kashmir's worst militant attack in more than a year  Read 

OPEC Meeting

OPEC Meeting

Saudis block OPEC output cut, oil price sinks further.  Full Article 

E-Commerce Boom

E-Commerce Boom

Online grocers come up trumps in India's e-commerce boom   Full Article 

GDP, RBI Preview

GDP, RBI Preview

GDP growth set to weaken, business wants reforms more than rate cut  Full Article | Related Story 

Jaitley to Rajan

Jaitley to Rajan

Jaitley likely to meet Rajan on Monday to urge rate cut  Full Article 

Banking Sector

Banking Sector

India moves to allow more businesses to offer basic financial services.  Full Article 

Jamini Roy

Jamini Roy

Photo Gallery – Bengali household name Jamini Roy’s paintings  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage