Global stocks start 2012 with an upswing but experts are forecasting a New Year hangover

EUROPEAN stocks ended higher in their first trading session of the year yesterday, led by defensive utilities such as E.ON and GDF Suez, while volumes were anaemic as UK and US markets remained closed for the New Year holiday.

The handful of Asian markets that opened yesterday gave a more patchy performance, and analysts warned that a post-Christmas hangover prompted by the Eurozone debt crisis is on the cards.

The FTSEurofirst 300 index of top European shares closed one per cent higher at 1,011.14 points, the index’s highest close in two months, with investors shrugging off gloomy data from the Eurozone showing the region’s manufacturing activity declining for a fifth straight month in December.

Germany’s Dax index closed up 177.16 points, or three per cent, at 6,075.52.

The Paris-based Cac 40 also ended up, closing 62.49 points, or 1.98 per cent, higher at 3,222.30.

Meanwhile, Madrid’s IBEX closed up 157.5 points, or 1.84 per cent, higher at 8,723.80 points.

The markets bounced back from the biggest annual drop since 2008 in European equities on Friday for the last day of the trading year, with banks the worst performers due to their exposure to the European debt crisis.

The STOXX 600 utility index, one of the worst performers among European sectors in 2011 with a loss of 17 per cent for the year, paced the gains yesterday, up 2.2 per cent, with E.ON up 4.2 per cent and GDF Suez up 2.9 per cent.

A number of traders and analysts warned about the risk of hangover from the brisk two-week Christmas rally when most investors come back to work later in the week.

“The odds for a post-party headache will indeed be high,” Saxo Bank trading adviser Didier Abbato said. “The bad news is that Santa did not deliver on a quick fix solution to Europe’s financial troubles.

“In the first few weeks of the year, we will be looking at the reaction from European sovereign bond markets to Italy’s and Spain’s next policy moves, the announcements by European banks of their recapitalisation plans as well as the ripple effects of the upcoming downgrades of France and its Eurozone partners.”

Spain was in the spotlight after its new government said this year’s budget deficit would be much larger than expected and announced a slew of surprise tax hikes and wage freezes.

But market-watchers have been nervous about predicting what equities will do this year, in the wake of extreme volatility throughout 2011.

The euro fell to a decade low versus the Japanese yen yesterday with more falls expected as concerns about the financing needs of highly indebted Eurozone countries plagued the shared currency into the new calendar year.

The euro fell as low as 98.71 yen on the EBS trading platform in early Asian trade, its lowest since late 2000, extending falls on Friday when it broke below 100 yen to finish the year down around eight per cent.

Sunday marked the 10th anniversary of the introduction of euro notes and coins and with no end in sight to the bloc’s sovereign debt turmoil, policymakers urged governments in the region to follow a tough savings course in 2012 to overcome the debt crisis.

And while many of the Asian markets also remained closed yesterday, Indian shares fell in New Year trading as investors were unconvinced a government decision to allow foreigners to directly buy stocks would spur inflows, with global risk appetite subdued.

The main 30-share BSE index was down 0.2 percent to 15,428.01. It had risen as much as 0.56 per cent in early trade.

The government said on Sunday individual foreign investors would be allowed to direct access to the stock market from 15 January.

The Sensex has been among the worst performing markets in the world in 2011, falling 24.6 per cent, as high interest rates and slowing economic growth dented investor confidence.

The Korea Composite Stock Price Index started the year on an even keel, with Seoul wrapping up the first trading day 0.03 per cent higher at 1,826.37 points.

The tech sector made strong gains, but the rest of the market was tempered by lacklustre manufacturing figures and continued concern about the unresolved debt crisis in Europe.

Gulf bourses were mixed in muted trade as many investors were still away on holidays. Egypt’s benchmark index rose 1.6 per cent as some investors took new positions in the tentative hope of equity gains this year after the market slumped by almost half in 2011.