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Euro confidence boost surprises analysts

European confidence in the economic outlook improved more than economists forecast to the highest in almost three years in October, led by manufacturing sentiment.

An index of executive and consumer sentiment in the 16 euro nations rose to 104.1 from 103.2 in September, the European Commission in Brussels said in a statement yesterday.

That's the highest since December 2007 and exceeded economists' forecast for a reading of 103.5, based on the median of 26 estimates in a Bloomberg News survey.

European manufacturing growth accelerated in October and German business confidence unexpectedly increased. MAN SE, the region's third-largest truckmaker, yesterday reported third-quarter profit that beat analyst estimates. Nevertheless, the euro-region recovery may weaken as a stronger euro and faltering global demand hurt exports and governments cut spending.

"The unexpected rise in sentiment doesn't signal a renewed pickup in economic activity," said Aline Schuiling, an economist at ABN Amro in Amsterdam. We see a "moderate but ongoing expansion after a surprisingly good start to the year".

A gauge of sentiment among manufacturers rose to 0 in October from minus 2, while services confidence held at 8, the report showed. The index of consumer confidence remained at minus 11 and a gauge of sentiment among builders rose to minus 25 from minus 26. Gauges of hiring by manufacturers and services companies both increased.

The report also showed a continued gap between the region's largest member states and the so-called peripheral nations. Among the largest economies, France had the biggest jump in economic sentiment in October, while German confidence also improved. In Spain and Portugal, economic confidence worsened.

"There is still a stark divergence between sentiment in the core and periphery," said Jennifer McKeown, an economist at Capital Economics Ltd, in London. "But we fear that sentiment in the core will follow that in the periphery down as fiscal austerity spreads and exporters suffer from weaker global demand."

European manufacturers' capacity utilisation rose to 77.6pc in the fourth quarter from 77.2pc in the previous three months, the commission said in yesterday's report. That's the highest since the fourth quarter of 2008.

BASF SE, the world's largest chemical maker, raised its 2010 earnings outlook yesterday after earlier this month forecasting "good business development" in the fourth quarter.

The European Central Bank said yesterday that net demand for business loans turned positive for the first time in more than two years in the third quarter, led by "increased financing needs for inventories and working". (Bloomberg)

Irish Independent