Shares gain ground as oil prices extend fall

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LONDON (Nov 4): European shares gained ground and core bond yields dipped on Tuesday following a raft of company trading updates, bucking a more muted trend in Asia and the United States as oil prices extended their fall and economic growth fears lingered.

U.S. crude oil was trading down by more than $1 at $77.61 a barrel, while Brent crude futures also fell to $83.66, extending losses after top oil exporter Saudi Arabia cut prices to the United States.

The after-effects of the Bank of Japan's surprise stimulus move last week were also still being felt, with the dollar taking a breather but still near multi-year highs against the yen and euro and with raised expectations that the ECB will eventually have to adopt quantitative easing.

The pan-European FTSEurofirst 300 index was up 0.4 percent at 0750 GMT after Spain's Banco Santander reported a jump in third-quarter net profit and German luxury carmaker BMW AG said its third-quarter operating profit came in ahead of expectations.

The European reporting season is not turning into the rout investors feared, with cost cuts helping to deliver earnings in line with or ahead of downbeat forecasts.

The mood, nevertheless, remained far from euphoric in the wake of disappointing economic signals from China, where data on Monday showed manufacturing activity hit a five-month low, as well as downbeat euro zone manufacturing PMI numbers.

"Earnings have been better than expected overall and this is offsetting the bad macro data seen in Europe lately," said Alexandre Baradez, chief market analyst at IG France.

"The dollar is on the rise again, and investors are starting to price in the impact that the lower euro will have on exporters' profits but also on the euro zone economic growth in the long term."

JAPAN BUCKS ASIA'S DIP

Asian stocks dipped on Tuesday as the latest signs of slower growth in China and the euro zone dampened the mood, although Japan bucked the trend and rose to new seven-year highs on the back of the monetary-stimulus momentum.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.2 percent.

Tokyo's Nikkei was up 2.7 percent after advancing to a peak last touched in October 2007, boosted by the yen's continuing weakness. Japanese financial markets were closed on Monday for a public holiday.

"Investors who missed the initial move are positioning themselves for the next lurch higher," said Raiko Shareef, currency strategist at Bank of New Zealand.

The euro was up 0.3 percent at $1.2521 EUR= after falling to a two-year trough of $1.2390 overnight.

Repercussions from the yen's broad depreciation were felt in South Korea, where exporters extended losses on worries that a softer Japanese currency would erode their price competitiveness relative to Japanese rivals. South Korean shares were down 0.9 percent.

The Australian dollar was up 0.5 percent at $0.8724 as the U.S. dollar ceded some ground against its peers. Overall reaction to the Reserve Bank of Australia's widely anticipated decision to leave rates unchanged was limited.

The central bank refrained from stepping up its warnings about a strong currency, which lifted the Aussie slightly.

The Malaysian ringgit was near a nine-month low against the dollar on worries over lower oil prices hurting the country's economic fundamentals.

It recovered some of its losses, with the central bank suspected of intervening to support the currency, though that gave investors a chance to unload the ringgit.

"We cannot fight the (U.S. dollar). We have U.S. jobs data this week, which is another USD positive factor," said a senior Malaysian bank trader in Kuala Lumpur.