Economy optimism lift European shares to 3-wk high

* FTSEurofirst 300 index up 0.8 pct at 3-wk closing high

* ADP report reinforces confidence ahead of nonfarm payrolls

* Miners gain; Vedanta up on bullish broker note

By Harpreet Bhal

LONDON, March 30 (Reuters) – European shares hit a
three-week closing high on Wednesday after a U.S. labour report
revived confidence in a recovery in the world’s largest economy.

The ADP employment report showed an addition of 201,000
private sector jobs in March, giving investors hope for a
similarly upbeat reading for Friday’s government-compiled
non-farm payrolls data, which analysts said could help lift
equities from their recent ranges. [ID:nN30275708]

The pan-European FTSEurofirst 300 (.FTEU3: Quote, Profile, Research) index of top
shares ended up 0.8 percent at 1,134.63 points, its highest
closing level since March 9.

Heavyweight mining shares were among the big gainers,
supported by confidence in the recovery of the economy. The
STOXX Europe 600 basic resources index (.SXPP: Quote, Profile, Research) rose 0.8 percent

Within the sector, Vedanta (VED.L: Quote, Profile, Research) rose 3.4 percent as
traders cited a bullish note from Morgan Stanley in which the
broker said the market had not recognised the miner’s
industry-leading growth.

Carmakers were also buoyed by improved economic prospects,
with the STOXX Europe 600 autos index (.SXAP: Quote, Profile, Research) up 1.7 percent,
bouncing back from falls triggered by concerns about disruption
to global supply chains in the aftermath of the earthquake and
tsunami in Japan.

Defence firm Rolls Royce (RR.L: Quote, Profile, Research) added 1.7 percent after
broker HSBC upgraded its investment recommendation and lifted
its earnings forecast.

Technical indicators also showed the market had scope to
push higher before being reaching the 70 overbought level, with
the 14-day relative strength index (RSI) on the Euro STOXX 50
(.STOXX50E: Quote, Profile, Research) hitting 53 on Wednesday, easing from oversold
territory of below 30 earlier in March.

“We have worked through the oversold conditions, and
technically the markets are in a very strong and favourable
condition to respond to good newsflow. If we do get good
non-farm payrolls, the market will do very, very well,” said
Mike Lenhoff, chief strategist at Brewin Dolphin.

“The time has come for some positive surprises on the
non-farm payrolls because business confidence is very high, and
the employment component of the ISM surveys indicate that
companies are predisposed to creating jobs.”

A revival of the U.S. labour market and an easing of the
high unemployment rate are seen as crucial elements in the path
to economic recovery, with non-farm payrolls expected to show
the economy created 190,000 jobs in March, while the private
payrolls component is forecast to rise by 200,000.

DOWNSIDE

On the downside, hearing aid maker Sonova (SOON.VX: Quote, Profile, Research) fell
11.7 percent after its chairman, chief executive and chief
financial officer resigned following an insider trading probe.

Bancassurer Irish Life & Permanent (IPM.I: Quote, Profile, Research) suspended trading
of its shares in London and Dublin after media reports that bank
stress tests might force it into state control. Bank of Ireland
(BKIR.I: Quote, Profile, Research) fell 9.3 percent.

Ireland is scheduled to release results of its latest stress
tests on Thursday at 1530 GMT, hoping that the results will put
a final figure on the cost of dealing with its banking crisis.
[ID:nLDE72T086]

“Tomorrow’s Irish bank stress tests are expected to see a
further drain in the bailout contingency fund, and this will in
all likelihood lead to another ratings downgrade,” said Michael
Hewson, market analyst at CMC Markets.

Other fallers included Dixons (DXNS.L: Quote, Profile, Research), which shed 18.3
percent after its profit warning and downbeat forecast added to
the view that cash-strapped shoppers were cutting back on
spending.

Dixon’s troubles had a read-across to fellow retailer Marks
and Spencer (MKS.L: Quote, Profile, Research), which fell 3 percent, on fears the firm
could release a gloomy outlook in its fourth-quarter update due
next week.
(Reporting by Harpreet Bhal; Editing by Will Waterman)

Economy optimism lift European shares to 3-wk high