European markets rally after Japan's economy contracts

European markets rose this morning, after Japan's stock market soared 7.2 per cent despite bad economic news. By 10am, Britain's FTSE 100 was six per cent up on the lows it reached in the middle of last week.

According to The Guardian, Chris Beauchamp, a market analyst at IG Group, said this morning that the rising FTSE 100 "has many scratching their heads and wondering why investors have suddenly become so ebullient".

But, he added, the rise is to be "filed as a brief flowering" within a downward trend rather than "the start of something much more long-term".

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Other European markets were also strongly higher this morning, but, said Beauchamp, "with the US out of the picture due to a national holiday it is too early to know if these gains will last into the rest of the week".

Japanese shares enjoyed a significant bounce earlier today, despite the news that the country's economy contracted even more than feared in the last quarter. The Nikkei 225 index closed 7.2 per cent at 16,022.5 points.

The movement, which represents the Nikkei's biggest daily gain since 2008, came as the dollar rose against the yen to finish at 113.95 yen, up from 113.25 on Friday.

Last week, the dollar fell to a 15-month low against the yen and the Nikkei lost more than 11 per cent, said the BBC.

The Guardian quoted Mike van Dulken of Accendo Markets as saying it is Japan's bad news - the economy shrank 0.4 per cent between October and December - that has driven the European rally this morning.

Together with poor economic data from China, the Japanese results had "added to hopes of more central bank intervention and stimulus, which buoyed commodities prices".

He added: "It would appear to be a case of bad news is good news again."