Markets rally on positive signals from Europe and US

After the disappointment with the lack of action from the European Central Bank on Thursday, markets rallied on Friday on renewed hope of a resolution to the European sovereign debt crisis. The S&P 500 rose 1.9 percent while the Stoxx Europe 600 jumped 2.4 percent. Spain’s two-year yield dropped 87 basis points to 3.96 percent while the 10-year yield fell 32 basis points to 6.85 percent.

Positive economic data also helped boost investor sentiment.

In the US, employment increased by 163,000 in July, well above expectations for an increase of 100,000. The unemployment rate edged up to 8.3 percent from 8.2 percent though.

Supporting the positive picture for the US economy was an increase in the Institute for Supply Management's non-manufacturing index to 52.6 in July from 52.1 in June.

In the euro area, Markit's composite index based on surveys of purchasing managers rose to 46.5 in July from 46.4 in June, helped by an increase in the services index to 47.9 from 47.1. Eurozone retail sales growth slowed to 0.1 percent in June though from 0.8 percent in May.

In the UK, the Markit/CIPS services PMI fell to 51.0 in July, its lowest level since December 2010, from 51.3 in June. This pushed Markit's UK composite index down from 51.1 in June to 49.5 in July, its first contractionary reading since April 2009.

There were mixed signals on China's services sector on Friday. The PMI from the National Bureau of Statistics and China Federation of Logistics and Purchasing fell to 55.6 in July from 56.7 in June. However, HSBC's services index rose to 53.1 from 52.3.