* Global, emerging stocks supported by data, earnings
* Wall Street set for slightly lower open
By Jeremy Gaunt, European Investment Correspondent
LONDON, July 26 (Reuters) - Robust U.S. company earnings and
surprisingly vigorous euro zone economic data generally trumped
investor scepticism about European bank stress tests on Monday
to support global stocks including banks.
Emerging market stocks hit a 2-1/2 month high although Wall
Street looked set to open mildly lower after solid gains on
Friday.
There was weakness on European bourses, but banking stocks
<.SX7P>, the key test, were up a third of a percent on the first
trading day after the release of stress tests, which showed most
financial institutions to be in relatively good shape.
[]
There was still concern that the tests were not tough -- by
not considering sovereign debt default, for example -- but
investors appeared content with the results.
The cost of insuring bank debt against default was cheaper,
with the Markit iTraxx Senior Financials composite narrowing 2.5
basis points. Euribor interbank lending rates were barely
changed.
"We interpret the bank stress test as positive. Disclosure
is help not hindrance, therefore, we are overweight on banks. We
do not expect a double-dip," said Gary Baker, head of European
strategy at Bank of America Merrill Lynch.
Underlying investor sentiment has been lifted by a series of
reports in the past week showing the broader European economy to
be stronger than thought.
Purchasing managers' indexes indicated third-quarter euro
zone growth of around 0.6-0.7 percent, double the 0.3 percent
forecast in the most recent Reuters poll. German business
sentiment also posted a record jump in July to its highest level
in three years.
Non-euro zone member Britain added to the mix with an
economy growing twice as fast as expected in the second quarter.
Wall Street also weighed in with some bullish news on
Friday, when U.S. conglomerate General Electric <GE.N> increased
its quarterly dividend by 20 percent.
The wide-ranging impact GE has on the U.S. economy, coupled
with another round of strong earnings, bolstered investor
confidence.
BofA's Baker said valuation in Europe was also "very
reasonable".
World stocks as measured by MSCI <.MIWD00000PUS> were up 0.3
percent and the Thomson Reuters global stock index <.TRXFLDGLPU>
gained about 0.2 percent.
The FTSEurofirst 300 <> was flat.
EURO FIRMS
The euro erased most of its early gains against the dollar
as caution set in and early risk-taking sentiment faded a bit.
"Any downside lurch has been prevented by the generally
reassuring conclusions of the tests ... no surprises as to the
vulnerabilities, and no real headache in terms of the required
capitalisation to bolster their position," said Daragh Maher,
deputy head of FX strategy at Credit Agricole CIB.
"At the same time, any relief rally for the euro has been
curtailed by inevitable criticism about some of the deficiencies
of the stress test assumptions." []
The euro was flat compared with late U.S. trade on Friday at
$1.2900 <EUR=>, falling from a session high of $1.2958.
Euro zone government debt was mixed, with short-term bonds
selling off.
"We doubt ... that the stress test results will have a
lasting impact on fixed income valuations, especially given the
heightened focus on macro economic fundamentals," said Jamie
Searle, analyst at Citi.
"The market will be watching for any further signs that
double-dip concerns are overblown following Friday's strong
German IFO and UK GDP numbers."
(Additional reporting by Ian Chua, Natsuko Waki and Tamawa
Desai; Editing by Susan Fenton)
