* Euro zone PMIs highest in nearly 6 years
* HSBC shares slide 7 pct on profit slump
* Dollar up on March rate hike talks
By Jamie McGeever
LONDON, Feb 21 Figures showing the fastest pace
of growth in euro zone business activity for six years propelled
European stocks to a 14-month high on Tuesday, reversing an
earlier fall after the continent's biggest bank HSBC
reported a surprise slump in profits.
Europe's benchmark index of 300 leading shares rose
0.3 percent to 1,468 points, led by purchasing manager index
(PMI) reports that showed the euro zone economy expanding much
faster and more smoothly than expected.
Growth in Germany's private sector reached its highest level
in nearly three years, while French business activity surged to
near a six-year high. Overall, the PMIs showed that private
sector manufacturing and service sector activity in the euro
zone this month was its strongest since April 2011.
"The euro zone recovery powers ahead in February, with the
PMIs showing a further strong acceleration from already solid
levels," wrote Marco Valli, chief euro zone economist at
Economists at JP Morgan raised their second quarter euro
zone growth forecast to 2 percent annual rate from 1.5 percent.
Germany's DAX gained 0.5 percent to hit its highest
level since May 2015, while France's CAC 40 reversed
earlier losses to trade 0.3 percent higher.
The turnaround in Europe followed an initial slide on HSBC's
earnings. The shares in Europe's largest bank by assets fell 7
percent, on track for their biggest fall since March 2009, after
the bank said pre-tax profits last year slumped 62 percent, far
more than analysts had expected.
Europe's banking index was last down 1.2 percent, having
fallen as much as 2 percent in early trade.
"In spite of the plunge it's still up more than 50 percent
from its post-Brexit low," said Neil Wilson, senior market
analyst at ETX Capital, referring to HSBC's share price.
"But all the dollar-earning upside may have been baked into
the stock price already and with the pound now pretty steady,
the free ride for HSBC's shares looks over."
Europe's bounce pushed U.S. stock futures further into
positive territory, with Wall Street now called to open 0.3
percent higher on the first day of trading since Friday. U.S.
markets were closed for the Presidents Day holiday on Monday.
FRANCE IN FOCUS
MSCI's world stock index and MSCI's broadest
index of Asia-Pacific shares outside Japan were
both flat on the day, supported by the turnaround in Europe.
China's blue-chip index rose to its highest in
over two months, extending gains from Monday - its best day in
six months - on reports that pension funds would begin pumping
funds into the country's stock markets.
With U.S. markets closed on Monday, Asian markets had few
global cues off which to trade. U.S. futures point to a rise of
around 0.1 percent at the open on Wall Street .
The upbeat European PMIs emboldened the bearish case for
French bonds, which have been under mounting pressure in recent
weeks as concerns surrounding the April-May presidential
election have intensified.
Investors have been preoccupied by the possibility that
far-right and anti-euro candidate Marine Le Pen might win.
The premium investors demand to hold French bonds instead of
German debt eased slightly on Tuesday from Monday's near
four-year high. The spread was last at 78 basis points, after
widening out to as much as 85 bps on Monday
"It seems that, more and more, investors just want to get
out of French bonds and are trying to take advantage of any
chance to sell them," DZ Bank Daniel Lenz said.
In currencies, the euro failed to get any traction from the
PMI data, and was last down 0.7 percent at $1.0535 and on
course for its biggest fall in a month.
A slide in short-dated German bond yields to a record low
-0.866 percent dulled the euro's allure, while the
dollar gained ground in line with a tentative move back up in
U.S. bond yields.
The greenback rose 0.5 percent against the yen to 113.65 yen
, and the 10-year U.S. government bond yield
rose 3 bps to 2.45 percent after two Federal Reserve
policymakers pointed to the potential for U.S. interest rates to
rise next month.
Oil prices rose, with Brent futures up 1.6 percent
to $57.05 a barrel and U.S. West Texas Intermediate crude
for April delivery up 1.7 percent to $54.33 a barrel.
(Reporting by Jamie McGeever; Editing by Gareth Jones)