GLOBAL MARKETS: European Stocks Up, Liquidity Flows Across Markets

-- European stocks up after pleasing results, M&A news
-- Italian government bond yields ease as extra liquidity put to good use
-- U.S. stocks set to open up but investors still mulling over Bernanke's comments


LONDON (Dow Jones)--European stock markets pushed a little higher Thursday, supported by strong corporate earnings from some of the region's leading blue-chip companies, while market participants were also seeing the effects of the extra liquidity awash in the market following the European Central Bank's Long-Term Refinancing Operation.

The Spanish Treasury took advantage of the liquidity in the market and sold the maximum targeted EUR4.5 billion in government bonds. "Yesterday's three-year LTRO auction injected further liquidity in the market and it certainly supported today's auction," said Annalisa Piazza, economist at Newedge. On Wednesday, the ECB allocated EUR529.531 billion in its second LTRO to 800 bidders.

Meanwhile, Italian two-year yields plummeted to their lowest levels since October 2010, as investors flocked to pour cash into government debt following the LTRO. At 1135 GMT, the two-year Italian government bond yield was down 28.60 basis points at 1.834%, according to Tradeweb. Longer-dated debt also benefited too. The Italian 10-year benchmark yield was down 20.30 basis points at 5.009%, having been above 7% in early January.

This doesn't come as a surprise to the market. "We expect up to a fifth of the LTRO to be invested in government bonds, mainly in Spain and Italy," said UBS in a note.

In equities, the benchmark Stoxx Europe 600 index was up 0.6% at 265.90 by 1140 GMT, helped by strong earnings news. London's FTSE 100 index was 0.6% higher at 5909.06, Paris's CAC 40 index rose 0.4% to 3467.41 and Frankfurt's DAX was up 0.5% at 6890.43.

Deal news was the highlight, with shares of Cable & Wireless Worldwide soaring 17% on reports that India's Tata Communications may make a bid for the U.K. group, competing with Vodafone, which is also considering a bid.

Elsewhere, shares in Switzerland-listed staffing company Adecco rose 7.0% after it said full-year sales rose 10% last year and net profit increased 23%. Shares in Man Group rose 6.5% after the U.K.-listed hedge fund said funds under management had increased slightly in the first two months of 2012 and it had seen an improvement in investor sentiment since the end of last year. Advertising giant WPP rose 4.4% after it expressed cautious optimism about another strong performance this year following a sharp rise in annual profit, driven by strong growth in emerging markets and corporate investment in brands.

The upbeat corporate picture helped to offset weakness in euro-zone manufacturing data. The Markit purchasing managers index for the manufacturing sector rose to 49.0 in February from 48.8 in January, unchanged from a preliminary estimate. A figure of less than 50 indicates a contraction in activity.

Also, the euro zone's unemployment rate rose to a near 15-year high in January, while the annual rate of inflation in the currency area also picked up.

In the U.K., the manufacturing PMI dipped to 51.2 in February from 52.0 in January, just below the 52.0 that the market was anticipating. But the headline index remained above the break-even 50 level, so the report offered hope that the U.K. can avoid a technical recession after the economy shrank 0.2% in the fourth quarter of 2011, said ING Bank.

In foreign exchange markets, the euro was sluggish against the dollar. It certainly wasn't helped by the economic data from the euro zone. In addition, many currency traders thought the strong demand for the ECB's LTRO was already priced in.

By 1140 GMT, the single currency was at $1.3321 against the greenback from $1.3324 late Wednesday in New York.

Spot gold was at $1,711.20 a troy ounce, up $14.90 from its New York settlement on Wednesday. April Nymex crude oil futures were 11 cents higher at $107.18 a barrel, while April Brent oil futures were up 79 cents at $123.45. The March bund contract was down 0.35 at 139.54.

Meanwhile, Wall Street was expected to open slightly higher Thursday, bouncing from its negative close in the previous session.

Investors will continue to assess the testimony to Congress Wednesday of Federal Reserve Chairman Ben Bernanke, who played down the prospect of further quantitative easing in the near term. At 1135 GMT, the Dow Jones Industrial Average front month futures contract was up 0.2% at 12,961.0 and the S&P 500 futures contract was 0.1% higher at 1366.30.