European stocks climb

European stocks rose and the euro stayed under pressure this morning as investors weighed the debt turmoil in the euro zone against an improved US economic picture that looks set to deliver upbeat corporate results.

European shares gained from the start on Tuesday, led by mining stocks after forecast-beating results from Alcoa improved the outlook for commodities.

“A good start to the earnings season; it shows the demand outlook is not so bad and we could get more positive surprises," Mike Lenhoff, chief strategist and head of research at Brewin Dolphin Securities, said.

The key FTSEurofirst 300 index was up 1.3 per cent at 1,021.47 points, while the STOXX Europe 600 euro zone banking index gained around 2.0 per cent.

Nervous currency markets remained focused on the outlook for the euro zone economy, upcoming government debt sales and how the region’s banks will raise much needed capital to repair their balance sheets.

The euro rose slightly to trade around $1.2792, holding firmly above the 16-month lows of $1.2666 hit on Monday, due mainly to traders buying back the currency to square their positions after recent heavy selling.

The Bank of France focused attention on the ailing euro zone economy by reporting growth had stalled at zero in the fourth quarter of 2011 in the region’s second-biggest economy.

But separate data showed French industrial production rose 1.1 per cent in November, bucking expectations for no growth as output from refineries rose from weak levels of a year ago during strikes.

“There's short-covering and a bit of risk appetite with positive equity markets overnight,” said Niels Christensen, currency strategist at Nordea in Copenhagen.

“But we have the debt auctions, the ECB meeting on Thursday and it’s still a weak and vulnerable euro..., with no sign of a quick solution to the debt problems in the euro zone,” he said.

The worries about the health of the region's banks saw commercial lenders’ overnight deposits held at the ECB hit another record high of €482 billion.

The banks are awash with cash after taking an unprecedented €489 billion in the ECB’s first-ever three-year liquidity operation late last month, but they are still uncertain about what to do with the money in the longer term.

Reuters