Major European markets were up more than 3 percent Friday after officials banned short selling, a practice in which traders make money on a stock’s decline. Some regulators suspect that the practice encourages excessive speculation and contributed to a sharp drop in the value of European bank stocks this week.
But other news from Europe gave a truer picture of the problems that remain. New data on economic growth showed that the French economy, Europe’s second-largest, has ground to a virtual halt, and a report on industrial production showed it slowing across the continent.
The Italian government, facing pressure from global investors and other European countries to control its public debt, approved $65 billion Friday in new budget cuts and tax increases aimed at balancing its budget by 2013. The cuts will raise taxes on high-earners while reducing spending on transportation and other projects that some economists say are needed to improve growth.
But Premier Silvio Berlusconi said there was little choice. The European Central Bank has been urging Italy to take dramatic steps to control the national debt. Last weekend, the ECB came to Italy’s aid, announcing that the central bank would begin buying Italian government bonds in an effort to counteract a precipitous rise in the country’s borrowing costs.
“We’re personally pained to have taken these measures, but we are satisfied,” Berlusconi said after a negotiating session with opposition groups and local officials, according to wire service reports from Rome.
The strong showing in U.S. markets came after a Commerce Department report of a jump in consumer spending in July, as Americans increased their purchases of electronic products, furniture, autos and other goods. Consumer spending rose 0.5 percentage points in July compared with the month before. The report was the latest in a series of mixed economic indicators, which show that the U.S. economy is continuing to grow, but at a slowing pace.
The retail sales increase is “hardly spectacular,” particularly because it was driven in part by higher gasoline prices, Paul Dales, senior U.S. economist for the Capital Economics consulting firm, wrote in a research note.
But amid concerns that the United States could be headed for a double-dip recession, any sign of economic activity is a good one.
Combined with a better-than-expected report earlier in the week on unemployment benefits, analysts at ING Financial said the retail report makes “a cautious case for modest optimism” about the U.S. economy’s ability to avoid a renewed recession and continue growing for the rest of the year.