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Shares gain, oil falls on Middle East truce

The fragile truce took effect on Monday to end five weeks of fighting between Israel and Hezbollah. Investors had feared a prolonged war could draw in Syria and Iran, both supporters of Hezbollah, and damage investor risk appetite.

“It’s clearly a symbolic element, although there is a lot of uncertainty. We see institutional investors’ risk appetite is improving and that is broadening out to equity markets,” said Ryan Shea, market strategist at State Street.

The FTSEurofirst 300 index of leading European shares was up 0.7 percent at 1340.44 at European midsession.

The euro held near last week’s record high against the yen following data showing the euro zone economy grew at its fastest pace in six years in the second quarter, beating expectations thanks to robust French and German figures.

This helped Germany’s DAX share index outperform others at one point.

“Germany seems to have turned from the sick man of Europe into one of the old continent’s Wunderkinder in less than two years,” said Holger Schmieding, economist at Bank of America.

Ahold, BA up

Among leading equities, Ahold jumped 3 percent after hedge funds Paulson & Co. Inc. and Centaurus Capital signalled their wish for a breakup of the group, saying they planned to push for a restructuring at the Dutch food retailer.

Banks and oil stocks added to strength in UK shares, helping them erase losses made last week after British police said they foiled a plot to bomb transatlantic airliners.

British Airways rose after the United States scaled back the threat level for commercial flights from the UK with Britain downgrading the threat of an attack to severe from critical.

US stock futures are pointing to a higher opening on Wall Street later in the day.

Oil, gold down

US crude extended earlier losses to stand down more than 1 percent on the day following the Middle East truce and after BP said it would keep half its Prudhoe Bay oilfield pumping while it carries out pipeline repairs.

London Brent was down $1.29 at $74.34 a barrel.

Oil prices are still up more than 20 percent so far this year as Nigerian militants cut about a quarter of its supplies and as OPEC peer Iran’s stand-off with the West over its nuclear programme keeps dealers on edge over a wider outage.

Gold prices were down 1 percent, tracking oil lower.

Bucking the trend on commodities and energy, copper prices rose 1.3 percent. Copper was boosted as supply started to get tighter in China, the biggest consumer of the metal, and as a strike at the Escondida mine in Chile, the world’s largest copper mine, moved into a second week.

Fed vs ECB

The dollar’s climb against the euro and yen followed robust US retail sales data last week which fanned expectations the Federal Reserve might resume raising interest rates soon.

Last week, the Fed left interest rates steady at 5.25 percent after raising them 17 straight times, though it kept the gate open for more credit tightening if price pressures persist. US July CPI data is due on Wednesday.

The futures market is attaching around a 38 percent probability for a September rate hike.

In Europe, upbeat data and hawkish comments from European Central Bank officials are supporting expectations the ECB might raise rates again this year after hiking to 3 percent in August.

“(GDP data) will reinforce the market perception for more rate hikes by the ECB, probably strengthened the case for the next ECB rate move to be in October as opposed to November -- you may even get some betting on an Aug. 31 rate hike,” said Audrey Childe-Freeman, European economist at CIBC World Markets.

The yen remained an underperformer, hitting an 8-year low against sterling on expectations Japanese interest rates will remain at a low level at a time other central banks are raising them.