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EUROPE MARKETS: Europe Stocks Drop As Unemployment Hits New High

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03/01/2013 | 06:18pm CEST

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- Upbeat U.S. manufacturing data helped European stock markets pare losses on Friday, after record high unemployment in the euro zone and weak business-activity data in China had kept bourses mired in deep red for most of the day.

The Stoxx Europe 600 index lost 0.3 % to close at 289.02, but gained 0.2% on the week, marking the second weekly gain in a row.

The index earlier this week found itself losing as much as 1.3% on the back of inconclusive election results in Italy. On Thursday however, European markets concluded February with a ninth straight monthly gain, as global central bankers signaled they would stick to current easing policies.

"One of the big take aways this week is to take a longer-term view of the markets. It's a question of looking at the long game and understand whatever may happen on a daily basis may not change anything from a company view," said Richard Hunter, head of equities at Hargreaves Lansdown.

"I'm still optimistic about the prospects for the end of the year and from a micro perspective there are still companies that continue to outperform," he added.

Pointing in the other direction on Friday, however, mining firms posted some of the biggest losses as a gauge of Chinese factories showed the manufacturing sector expanded at a slower pace in February.

The government-sponsored version of the manufacturing Purchasing Managers Index came in at 50.1, only marginally ahead of the 50-point threshold that signals an expansion. The figure marked a decline from January's 50.4-point level and missed expectations for 50.5 in a Dow Jones Newswires survey. See: China manufacturing grows marginally, surveys show

Shares of Rio Tinto PLC (>> Rio Tinto plc) lost 2.8%, Anglo American PLC (>> Anglo American plc (ADR)) fell 1.1% and BHP Billiton PLC (>> BHP Billiton Limited) slipped 0.4%.

Euro-zone data

Data out of the euro zone were also disappointing, with the region's unemployment rate jumping to 11.9% in January, a record and above expectations of a 11.8% reading.

Additionally, the final reading of Markit's purchasing-managers index showed the euro zone remained in contraction territory in February. The index printed at 47.9, up from a flash reading of 47.8. See: Weak euro-zone data spark speculation of ECB rate cut

Investors also looked to the U.S., where automatic spending cuts, referred to as the sequester, were slated to take effect on Friday, after bills from both the Democrats and the Republicans failed to get enough support in the Senate on Thursday. See: Sequester cuts near as Senate bills fail

Also of interest in the U.S., the manufacturing sector accelerated to the highest level in almost two years with the Institute for Supply Management's manufacturing index climbing 1.1 points to 54.2%, coming in ahead of expectations of a 52.5% reading. See: Manufacturing sector revs up in February

Meanwhile, the University of Michigan-Thomson Reuters consumer-sentiment gauge rose to a final February reading of 77.6 -- the highest level since November. See: Consumer sentiment at three-month high in February

"With the recent economic data being ahead of expectations and corporate data surprising to the upside, most of the dip buying we have seen has been led by long term investors," said Atif Latif, director of trading at Guardian Stockbrokers, in emailed comments.

"They still understand in the search for yield the equity market offers more upside than the negative real rate of return from the fixed income market."

U.S. stocks traded lower on Wall Street. See: Stocks moderate drop after manufacturing data

Banks decline

In Europe, banks found themselves among the biggest decliners. In the U.K., Lloyds Banking Group PLC (>> Lloyds Banking Group PLC) fell 2.2%, after posting a loss for 2012. The result was hit by extra provisions in the fourth quarter to cover potential claims from people who were wrongly sold insurance products, known as PPI. See: Lloyds hit by further PPI charges

Glencore International PLC (>> Glencore International Plc) erased 2.7%, after the commodities titan said it won't be able to complete its proposed merger with mining company Xstrata PLC by March 15, as intended. Xstrata shares fell 3.1%. See: Glencore-Xstrata merger won't be complete by March

The FTSE 100 index , however, closed 0.3% higher at 6,378.60 and was up 0.7% on the week.

Shares of Old Mutual PLC gained 4.4%. The financial group posted an increase in 2012 profit and set aside 5 billion rand ($561.8 million) to invest in Africa over the next three to five years. See: Old Mutual posts rise in profit, focus on Africa

Germany's DAX 30 index erased 0.4% to 7,708.16, with shares of Deutsche Bank AG (>> Deutsche Bank AG (USA)) 4.3% lower after Goldman Sachs cut the bank to sell from neutral. The German benchmark closed out the week 0.6% higher. See: Deutsche Bank down 6%, downgraded by Goldman Sachs

Outside the main index in Frankfurt, shares of Metro AG dropped 4.9%, after the retailer cut its dividend payments for 2012. See: Metro cuts dividend payments for 2012

France's CAC 40 index fell 0.6% to 3,699.91, sending it 0.2% lower on the week. Shares of Société Générale SA lost 2.6% and Credit Agricole SA erased 2.4%.

Elsewhere, Belgacom SA slumped 5.6%, as Belgium's largest telecom firm forecast lower sales and earnings in 2013 due to firm competition. See: Belgacom sees weaker earnings on more competition

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