EUROPE MARKETS: European Stocks Rally On U.S. Jobs Report

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets rallied on Friday, after U.S. nonfarm-payrolls data beat expectations, leaving investors questioning if the report would trigger Federal Reserve reductions in asset purchases.

The Stoxx Europe 600 index jumped 1.3% to close at 295.40.

The solid move on Friday, however, wasn't enough to pull the index out of red territory for the week, leaving it with a 1.8% weekly loss.

The index was still up 22% for the past 12 months, boosted by aggressive easing from central banks, although concerns that the U.S. Fed could soon start to scale back its stimulus sent markets lower in recent weeks.

The pan-European index had struggled for direction for most of the early session, but was sent higher after U.S. nonfarm payrolls data showed 175,000 jobs were added to the economy in May. The unemployment rate, however, ticked higher to 7.6% from 7.5%. Economists surveyed by MarketWatch expected an increase of 164,000 jobs in May and a jobless rate of 7.5%.

"Markets were positively surprised that the data beat expectations. The ISM index and ADP data earlier in the week suggested a reading around 100,000 for today's number so expectations were much lower than consensus estimates. So from a fundamentals perspective it was a positive surprise, but markets were also happy that it wasn't strong enough for the Fed to think about scaling back QE," said Jacob Oubina, senior U.S. economist at RBC Capital Markets.

"The data suggest that tapering will happen at some time this year, but not very soon, and it pushes away the thought that it could happen in the summer. If we maintain this pace in job growth, just shy of 200,000, it would be enough to usher tapering later this year. Our call is for October," he added.

Ahead of the data, investors worried that a strong labor report could push the Fed closer to scaling back its aggressive asset-purchases program. Fed Chairman Ben Bernanke said last month that a tapering could begin in coming months if data continue to improve, fueling worries the $85-billion-a-month liquidity injection into the market will soon come to an end.

U.S. stocks traded higher on Wall Street.

German data

Back in Europe, data showed industrial production in Germany jumped 1.8% in April, well above the 0.2% expected by analysts surveyed by FactSet.

Meanwhile, German trade data showed both exports and imports grew strongly, raising hopes of more solid growth in the second quarter.

The Bundesbank, however, cut its 2013 and 2014 growth forecast, saying much will depend on whether the euro zone emerges from recession. The central bank lowered its GDP forecast for 2013 to 0.3% expansion from its December estimate of 0.4% and revised its 2014 outlook to 1.5% from 1.9%. Read: Buba cuts German growth outlook -- but too soon?

The DAX 30 index rose 1.9% to 8,254.68, but ended the week 1.1% lower.

Shares of Deutsche Telekom AG climbed 1.9%, after the company said its T-Systems unit won a contract to provide cloud services to Finnish elevator company Kone Oyj

Banks were on the rise, with Deutsche Bank AG (DB) rising 3.8% and Commerzbank AG up 1.9%.

Insurance firms were also among notable gainers after Citigroup lifted the financial-services sector to overweight from neutral. Shares of Allianz SE added 3.3%, Swiss Re AG gained 3.5% and AXA SA climbed 4.2%.

The U.K.'s FTSE 100 index gained 1.2% to 6,411.99. On the week, the index closed out 2.6% lower.

BT Group PLC added 3.7% after Barclays lifted the telecom firm to overweight from equal weight.

Shares of Severn Trent PLC climbed 2.5%, after a multinational consortium of funds raised its offer for the water-utility firm, in its third attempt in less than a month to take the company private.

Shares of Aberdeen Asset Management PLC fell 1.7%, after Bank of America Merrill Lynch cut the investment firm to underperform from neutral.

France's CAC 40 index closed 1.5% higher at 3,872.59, trimming the weekly loss to 1.9%.

Credit Agricole SA added 2.9% and Société Générale SA picked up 1.8%.

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