U.S. data push Europe stocks to 9-mth closing high

European shares closed at their highest level in nine months on Monday as better-than-expected July U.S. manufacturing data boosted markets.

The pan-European FTSEurofirst 300 .FTEU3 index of top shares closed up 1.4 percent at 941.93 points after touching 947.01, the highest level since early November.

The Institute for Supply Management said its index of national factory activity rose to 48.9 in July from 44.8 in June. The median forecast of 72 economists surveyed by Reuters was for a reading of 46.2. [ID:nN03439889]

"The ISM data was certainly higher than the consensus numbers and was at the top end of the range. It is a good number; actually the significance of the 50 level being the cut off between expansion and contraction is overplayed," said Jim Wood-Smith, head of research at Williams de Broe.

"Numbers in the high 40s are normally consistent with GDP growth. It is confirmation, that at least for the time being, we have seen the worst of the recession," he said.

Banking stocks added the most points to the index. HSBC (HSBA.L) gained 4.9 percent after it reported a pretax profit above analysts forecasts. [ID:nL3661800]

Barclays (BARC.L) was 6.7 percent higher, rallying after an opening fall as the British bank posted first-half reported profits which Caznove said were "in line with consensus but arguably better underlying given larger than expected loss on fair value of own debt." [ID:nL3593368]

Among other banks UniCredit (CRDI.MI), BNP Paribas (BNPP.PA), Credit Suisse (CSGN.VX) and UBS (UBSN.VX) were up 0.1-2.7 percent.

COMMODS GAIN

Commodity stocks gained as crude CLc1 rose 2.8 percent and copper MCU3=LX rose 4.1 percent.

Energy stocks BG Group (BG.L), BP (BP.L) and Royal Dutch Shell (RDSa.L) were up 0.7-3.5 percent, while miners Antofagasta (ANTO.L), Eurasian Natural Resources Corporation (ENRC.L) and Xstrata (XTA.L) gained 5.3-7.1 percent.

"There seems to be no change to the optimistic mood at the moment. Rather than being concerned about the rally running out of steam, there is more a worry of missing the boat as the market powers ever higher," said Philip Gillett, a trader at IG Index.

The market also got a lift from positive figures. Purchasing managers' data showed British manufacturing activity grew last month for the first time since March 2008, benefiting from the fastest flow of new orders since November 2007. [ID:nL3668821]

And surveys showed Chinese factory growth accelerating in July, thanks to a revived domestic economy and slight pick-up in demand for its exports. The China purchasing managers index from brokerage CLSA hit a one-year high. [ID:nPEK360544]

Looking at the downside, defensive stocks weighed. Drugmakers took the most points off the index with Roche (ROG.VX) and Novartis (NOVN.VX) down 1.8 percent and 1 percent, respectively.

Across Europe, Britain's FTSE 100 .FTSE index closed at 4,682.46 points, its highest closing level since early October 2008. Earlier in the session, it hit a fresh intraday peak above the 4,700, its highest level since the collapse of Lehman Brothers in October 2008.

Germany's DAX .GDAXI was 1.8 percent higher and France's CAC 40 .FCHI was up 1.5 percent. (Additional reporting by Jon Hopkins; Atul Prakash; Editing by Rupert Winchester)

YouGov says FY trading in line with mkt view

(Reuters) - Online market research agency YouGov Plc (YOU.L) said on Monday full-year trading was in line with current market view and that its cost saving measures should help improving the underlying profit in the next financial year.

The company said all its geographies performed as expected in the last six months, including the recently acquired Clear Horizons business in the United States.

However, the company said it expected tough market conditions to continue at least until the end of 2009.

In April, the company had said it decided to scale back investment in non-core activities and reduce costs in areas which were not generating expected revenue growth, to cut annual operating cost base by about 2.5 million pounds.

The company, which provides research for Time Warner's (TWX.N) CNN, Google (GOOG.O) and Kellogg (K.N), said it continued to have a strong balance sheet and was cash generative.

Shares of the company were up 7.7 percent at 56 pence by 4:08 a.m. EDT on the London Stock Exchange.

Economic oil spill on the horizon?

NEW YORK (CNNMoney.com) -- Oil prices are on the march again, rising above $71 a barrel Monday for the first time in more than a month.

The good news is that increased optimism about an economic recovery is one big factor behind the jump in crude prices. The bad news is that if oil prices continue to rise, we may have to kiss those recovery hopes goodbye.

While there appear to be many signs that the economy is stabilizing, there has yet to be a pickup in consumer spending.

Many are still nervous about the economy, and the memory of last summer's $4 a gallon gas and $140 a barrel oil is still fresh in the minds of most people.

So the last thing that consumers need are more worries about rising costs at the pump and how expensive it's going to be to keep their homes warm this winter.

Robert Dye, senior economist with PNC Financial Services in Pittsburgh, said that oil prices between $60 and $70 a barrel are consistent with his belief that the recession should end sometime during this quarter and that the nation's gross domestic product could actually grow on an annualized pace in the fourth quarter.

But Dye said that if oil prices continue to remain higher than $70 for an indefinite period, that could be a problem.

"Oil above $70 could exert downward pressure on GDP, and if we get into the $80 to $90 range, I do think we run the risk of this very fragile recovery stalling out," he said.

Talkback: Are rising oil and gas prices affecting your spending habits? And are you worried that energy prices will get back near last year's record levels? Leave your comments at the bottom of this story.

Gas prices have taken a turn up as of late as well. The average price of a gallon of regular unleaded gas inched up to about $2.55 a gallon, according to the AAA's latest daily report Monday. That marked the 13th consecutive increase. Prices are up nearly a dime during that span.

Keith Hembre, chief economist for First American Funds in Minneapolis, said that these increases could cause consumers to pull back on other purchases. He estimates that for every penny increase in gas prices, consumers are collectively likely to spend $1.25 billion less on other discretionary items.

So the most recent rise in gas prices could mean that $12.5 billion spent on gas won't be spent elsewhere. To be sure, that's not a huge amount. But if energy prices keep rising, it will add up.

"It's cliche, but rising oil and gas prices are like a tax on consumers," Hembre said. "These increases probably won't be catastrophic and cause a major downturn in spending, but it's another factor that's likely to weigh on the pace of the recovery."

Four Passengers Injured in Plane Turbulence Remain in Serious Condition

Four passengers critically injured when a Continental Airlines plane hit turbulence on its way to Houston from Brazil remain in serious condition in a Miami hospital but are expected to survive, according to officials with Miami-Dade Fire Rescue.

Continental flight diverted to Miami because of injuries caused by turbulence.
Another 22 people who were injured and treated at the scene are in stable condition. By late this morning, most of the passengers had cleared customs in Miami and were set to resume travel to Houston.

Continental Airlines flight 128 was flying from Rio de Janeiro to Houston Intercontinental Airport when it hit a pocket of turbulence and had to make an emergency landing at Miami International Airport.

Things are looking up … sort of

Small business owners say they’re more confident about the economy, but they’re still plagued by worries about paying their bills and slumping cash flow, new research from Discover Financial Services shows.

Their optimism is a bit of a head-scratcher, especially considering the slew of discouraging news the survey uncovers. Some highlights:

* nearly 70 percent of small biz owners say their take-home pay has taken a hit in recent months.

* more than half say they’ve held off on bill payment because of cash flow issues in the past 3 months.

* almost 60 percent rate the economy as “poor”, and half of them said it was getting worse.

So why the optimism?

Ryan Scully, director of Discover’s business credit card, offers some context. For starters, he says the uptick in the confidence level is incremental (and a long way off its high way back in March 2007). And although only about a third of business owners think the economy is getting better, that’s up significantly from 16 percent in March.

“So we can’t say exactly what is fueling their confidence, but not all of the news they’ve been hearing is bad,” Scully told Reuters.

Interestingly, the survey found that business owners are shying away from traditional borrowing practices such as applying for a loan or getting a line of credit, possibly in favor of funding from friends and family, Scully said.

Healthcare, green tech brighten dim U.S. jobs picture

LOS ANGELES (Reuters) - Healthcare and clean energy rank as bright spots in a bleak U.S. jobs market and both stand to generate even more employment under plans put forward by President Barack Obama.

The health industry, bolstered by the demands of an aging population and supplied by new technologies, has added jobs despite the recession and is destined for further expansion should Obama make good on his promise of affordable medical care for millions of uninsured Americans.

The mix of jobs is likely to shift as preventive medicine gets more emphasis, record-keeping functions are modernized and fewer diagnostic tests are ordered, economists say.

"Green" tech, propelled by efforts to cut carbon emissions blamed for global warming, will benefit from an economic stimulus package enacted this year and a climate change bill making its way through Congress.

Healthcare and the environment were singled out in a report this month by Obama's Council of Economic Advisers as two sectors projected to be major U.S. job engines over the next several years.

Investments in the two areas "are laying the foundation for long-term economic growth," said Heather Boushey, an economist with the Center for American Progress.

STRONG ECONOMIC MEDICINE

Healthcare has grown 3.7 percent since the recession began in December 2007, while the labor force as a whole declined 4.7 percent, said Heidi Shierholz, an Economic Policy Institute economist, citing U.S. Labor Department data.

One reason that medicine has held its own during the recession is that nearly 60 percent of all healthcare costs are covered by the public sector, including programs like Medicaid and Medicare, helping insulate the industry from hard times, said labor professor Eileen Appelbaum of Rutgers University.

"People think we have a private health system in this country, but more than half is publicly financed," she said.

Budget strains are starting to take their toll on healthcare jobs in many states, she said. But the Labor Department projects that U.S. healthcare employment will grow 20 percent above 2006 levels by 2016, even without Obama's proposed overhaul.

Government forecasts for clean energy and green technology jobs as a whole are harder to come by.

Economists from the University of Massachusetts and the Center for American Progress concluded in a study last month that the economic stimulus and the climate-change bills would generate $150 billion a year in clean-energy investments, netting 1.7 million new jobs annually.

GOING FOR GREEN

Most of those gains would come from retrofits of homes and other buildings to improve energy efficiency and insulation. Other high-growth areas cited in the report included renewable energy sources such as wind and solar energy expanded public transportation and construction of a highly efficient new electric distribution network, known as the smart grid.

Credit losses, low deal volumes to hurt U.S. BDCs

BANGALORE (Reuters) - U.S. business development companies (BDCs) like American Capital Ltd (ACAS.O) and Allied Capital (ALD.N), which lend to small and mid-size businesses, may report yet another dismal quarter hurt by sinking deal volumes and higher credit losses.

Total middle-market deal volume was about $410 million in the quarter ended June 30, well below the $2.1 billion in the year-ago period and the near-term peak of $13.04 billion in the second quarter of 2007.

"Volume levels for middle market and larger transactions remained extremely low for the second quarter," Wells Fargo Securities analyst Jim Shanahan said in a research note.

BDCs like American Capital, Allied Capital, Ares Capital (ARCC.O), Apollo Investment (AINV.O), PennantPark Investment Corp (PNNT.O) and Fifth Street Finance Corp (FSC.N) make private-equity investments by lending to small companies and acquiring venture-capital stakes.

Deal volumes would have been extremely light in the second quarter as very few companies have capital to deploy, Stifel Nicolaus analyst Greg Mason said.

However, Wells Fargo's Shanahan said, "It does appear that volume levels have found a floor near current levels, although we do not envision a drastic improvement until economic conditions improve."

Another cause of worry for the BDCs are soaring credit losses stemming from their investment portfolio.

"Credit is going to be the wildcard. That is the biggest data point we will look for direction from here on now," Keefe, Bruyette & Woods analyst Sanjay Sakhrani said.

"I think they (credit losses) are going to go up," analyst Mason said, adding, "The question will be by what magnitude or how quickly are the portfolios deteriorating from the income standpoint."

COVENANT WOES

Some BDCs have also been battling with terms attached to their credit facilities and are in negotiations for waiver with their lenders.

"I think that American Capital and Allied in particular will be overshadowed by the debt agreements that they need to put in place with their lenders as that's all what matters right now," Stifel's Mason said.

Quarterly results will separate winners -- which were more conservatively managed during the peak of the credit boom -- distinctly from others, analysts said.

American Capital, which was removed from the Standard & Poor's 500 index .SPX in February, has defaulted on $2.3 billion of unsecured credit arrangements as of March 31 and auditors included a going-concern opinion on its financial statements.

Washington-based Allied Capital, which in May posted its fifth quarterly loss in a row, is also battered by frozen credit markets and is also in default on debt.

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