LONDON (AP) — Britain's FTSE 100 index of leading British shares was the only major European market to close higher Friday as investors priced in the likelihood that interest rates would remain at record low levels for a while yet after the country's recession unexpectedly continued into a sixth quarter.
The other major European markets closed down. Wall Street gave up most of Thursday's gains in midday trade in New York as investors took a breather following disappointing forecasts from major railroad companies.
The FTSE closed 35.21 points, or 0.7 percent, higher at 5,242.57 despite figures showing output unexpectedly fell by 0.4 percent in the third quarter from the previous three-month period. The further contraction means that Britain's economy has now shrunk for six quarters in a row — the longest and deepest recession since World War II.
Analysts said the FTSE may have outperformed its peers as investors priced in the growing likelihood that interest rates in Britain would remain at the current 0.5 percent well into next year. It also may have risen on the prospect that the Bank of England would pump more money into the financial sector that could end up supporting asset prices, such as stocks.
"With today's surprise announcement suggesting that interest rates are likely to remain suppressed for some time to come, investors still seem happy to take the bet that shares are still going to offer among the best returns," said Anthony Grech, market analyst at IG Index.
Though British stocks advanced, the pound took a battering on foreign exchange markets. By late afternoon London time, the pound was 1.7 percent lower at $1.6331, while the euro jumped 1.5 percent against it, to 0.9175 pounds.
Meanwhile, German and French markets closed lower after figures provided further evidence that the recovery in Europe was gaining traction. Germany's DAX ended 22.68 points, or 0.4 percent, lower at 5,740.25 while the CAC-40 in France was 12.61 points, or 0.3 percent, lower at 3,808.24.
Figures from the well-respected Ifo Institute showed that German business sentiment continued to rise even though the euro has spiked up above $1.50 for the first time in 14 months. Ifo said its monthly business climate index edged up for the seventh month running to 91.9 points in October from 91.3 in September.
All three of the main markets in Europe had been higher earlier as investors were buoyed by a strong performance on Wall Street Thursday following upbeat earnings from the likes of Amazon, AT&T and American Express.
So far, a large majority of U.S. companies have reported better-than-expected earnings and painted a fairly rosy picture for the coming months, helping many of the world's major indexes push back above the levels they were over a year ago before Lehman Brothers collapsed.
Microsoft's earnings Friday were similarly strong. Though its profit in the last quarter fell by 18 percent, Microsoft shares jumped as much as 9 percent as the decline was not as big as anticipated.
Microsoft was not enough to sustain the wider market rally, though, as investors used some downbeat comments from U.S. railroad companies Union Pacific and Burlington Northern to book some profits at the end of the week.
The Dow Jones industrial average was down 88.65 points, or 0.9 percent, to 9,992.66 around midday New York time while the broader Standard & Poor's 500 index fell 10.30 points, or 0.9 percent, at 1,082.61.
Earlier in Asia, Japan's Nikkei 225 stock average gained 15.82, or 0.2 percent, to 10,282.99 and Hong Kong's Hang Seng jumped 379.21, or 1.7 percent, to 22,589.73.
South Korea's Kospi advanced 0.6 percent to 1,640.17, while China's Shanghai index climbed 1.9 percent. Australia's index gained 1 percent, Taiwanese shares rose 0.5 percent and Indonesia's benchmark climbed 1.3 percent.
Oil prices fell slightly with benchmark crude for December delivery down 96 cents to $80.23 a barrel. The contract rose 18 cents to settle at $81.19 on Thursday.
The euro was steady at $1.5014 while the dollar rose 0.6 percent to 91.88 yen.
AP Business Writer Stephen Wright in Bangkok contributed to this report.