NEW YORK, Aug 12, (Agencies): European stock markets rallied on Friday as a ban on short selling financial shares tempted investors back into the sector, while Wall Street shrugged off early disappointment after US consumer sentiment dropped to the lowest in more than three decades. Investors also took comfort from US retail sales that rose in July for the biggest gain since March. Consumer spending accounts for two-thirds of US economic activity, and the data indicated the third quarter was off to a promising start. Analysts said that while the sentiment report was disappointing, the drop was not too shocking given recent political wrangling over the US deficit and declines in the stock market. “This has unquestionably been a very nervous time and people have been quite focused on macroeconomic and geopolitical events,” said John Carey, portfolio manager at Pioneer Investments in Boston. The Thomson Reuters/University of Michigan preliminary August reading of consumer sentiment, the lowest since May 1980, also pushed more money into US Treasuries. US stocks were up 1 percent at midday, while European shares provisionally closed up 3.4 percent. The MSCI world equity index rose 1.3 percent.

The Dow Jones industrial average gained 177.18 points, or 1.59 percent, at 11,320.49. The Standard & Poor’s 500 Index was up 13.19 points, or 1.12 percent, at 1,185.83. The Nasdaq Composite Index was up 24.55 points, or 0.98 percent, at 2,517.23.
Bank shares, which have fallen sharply in recent days, led the move higher in Europe after the ban on short selling imposed by France, Italy, Spain and Belgium. The four countries banned short selling — borrowing shares and selling them in expectation the price will fall — of a group of banks and financial institutions after a flurry of rumors knocked a third of the value off some European bank shares this month.
Traders said the measure would provide temporary relief to jittery investors, But concerns about euro zone debt problems and a deteriorating outlook for the global economy would keep trading erratic. “Data from various regulators of late have shown there is no short-selling activity out of the norm,” said Davide Burani, financial analyst at Italian fund manager Horatius. Still, troubles in the euro zone were not very far from investors’ minds as the Italian government was set to pass a sweeping package of spending cuts and tax increases as it scrambles to meet European Central Bank demands for action to shore up confidence in its public finances.

US
The mixed economic signals driving the stock market’s record-setting swings this week keep coming. On Friday, conflicting reports on retail sales and consumer sentiment sent the Dow up, then down, then up again.
By early afternoon, the Dow Jones industrial average was up 162 points. It had been up more than 150 points early Friday after a government report consumers spent more on autos, furniture and gasoline in July, pushing up retail sales by the largest amount in four months. But the Dow briefly turned negative after a dismal survey on consumers’ feelings about their personal finances and the economy.
The Reuters/University of Michgan survey of consumer sentiment fell to a 30-year low.
The retail sales data covered all of July, but financial markets didn’t start their wild ride until July 22. The sentiment survey was taken over the past 10 days, as Americans watched the markets leap and dive on news about Europe’s spreading financial crisis, the first-ever downgrade of the USs long-term credit rating, signals that the job market improved slightly in July and strong earnings from a technology bellwether.

Normally, such a bad consumer survey would have pushed shares sharply lower for the day, said Quincy Krosby, an investment strategist with Prudential Financial.
“But these are not normal times,” she said. Market volatility cuts both ways, sending shares way up or way down, Krosby noted. That can cause shares to defy economic data.
A separate government report on Friday showed that businesses increased their stockpiles of everything from raw materials to retail products for the 18th month in a row. Growing inventories are usually a sign of business confidence. But nervous consumers have held back recently; in June they cut their spending for the first time in nearly two years.
Markets worldwide gained on Friday despite a trade report Thursday that showed the economic slowdown might be a global phenomenon. France reported Friday that economic growth in the country slowed sharply in the second quarter.

Europe
European shares gained on Friday as a short-selling ban on financial stocks by France, Italy, Spain and Belgium provided a relief rally in beaten-down banks, while strong US retail sales data also helped investor sentiment.
But European shares made their third consecutive week of losses as the market swung wildly throughout the past five days, driven by rumours about the health of the financial sector and concerns over the euro zone debt crisis spreading.
Banks were among the best performers on Friday, with the STOXX Europe 600 Banks index up 4.5 percent. However, with all the volatility throughout the week the index ended up making a weekly loss of 2.4 percent.
Societe Generale , rallied for the second day, up 5.7 percent to feature on France’s CAC leader board after dropping 15 percent on Wednesday on rumours about its financial solidity, which were later strongly denied.
Belgian financial group KBC and Franco-Belgian bank Dexia gained 9.6 percent and 17.3 percent in volumes nearly double their 90-day daily average.
France, Italy, Spain and Belgium imposed a ban on short-selling financial stocks in an attempt to reduce the volatility and to help bring back confidence.
Also easing fears about the health of the banking sector was data from the European Central Bank which showed the overnight loan facility by banks totalled 227 million euros, much lower than the 4 billion euros borrowed the previous night.

UK
Britain’s top shares rose on Friday, underpinned by a short-selling ban on financial shares by France, Italy, Spain and Belgium, with banks, integrated oil stocks and miners leading the market higher.
After a tumultuous five days, during which it swung in a range of more than 500 points, the FTSE 100 index ended up 157.20 points, or 3 percent, at 5,320.03 on Friday, pulling back earlier losses to record a gain of 1.3 percent for the week.
Buyers came in for banks, boosted by the short-selling ban, despite doubts about the wisdom of preventing the controversial practice, whereby investors look to profit from anticipated price falls.
Barclays, Lloyds Banking Group and Royal Bank of Scotland all enjoyed gains at or near the 5 percent mark.
Investors were also given cause for cheer by modestly upbeat US retail sales data, which offset a weak reading on US consumer sentiment.

Asia
Asian stock markets struggled to find their footing Friday, giving back morning gains despite a dramatically higher finish on Wall Street prompted by a slight drop in US unemployment claims.
Global markets have fluctuated wildly this week as signs the US might be headed toward recession rattled investors already unnerved by Europe’s worsening debt crisis.
Oil prices fell below $85 a barrel as investors tried to make sense of a week of wild gyrations in the equity and commodities markets. The dollar weakened against the yen and rose against the euro.
Futures suggested Wall Street would give back some of its gains Friday. Dow futures were down 0.8 percent at 11,000 and S&P futures were off 1.3 percent, at 1,153.
Hong Kong’s Hang Seng added 0.7 percent to 19,727.43. Australia’s S&P/ASX 200 gained 1.1 percent to 4,186.40, while benchmarks in New Zealand, Singapore and mainland China also rose.
But Japan’s Nikkei 225 stock average was lower — down 0.2 percent to 8,963.72 after spending the morning in positive territory. A stronger yen, which reduces the value of profits earned overseas, pummeled export shares.
Also reversing course was South Korea’s Kospi, down by 1.3 percent to 1,793.31. Taiwan and India’s benchmarks also fell.

Oil
Oil prices edged up Friday, on signs that the US economy may lift demand for energy. Retail sales improved slightly in July and business inventories gained. But consumer sentiment fell to its lowest level in more than 30 years.
The reports left traders in the same spot they were in when the week began — guessing about future demand potential for everything from gasoline to heating oil.
Benchmark West Texas Intermediate crude rose 38 cents to $86.10 a barrel in midday trading on the New York Mercantile Exchange. In London, Brent crude rose 1 cent to $108.03 a barrel on the ICE Futures Exchange.
Oil prices have bounced from a low of $79.30 to a little more than $86 a barrel this week as investors remain concerned about global economic growth, ongoing financial problems in Europe and signs of a slower economy in China, a huge importer of oil and other commodities.
Oil inventories may continue to decline, as they did last week, but Lynch isn’t expecting demand to strengthen soon.
In other Nymex trading, heating oil rose 1.25 cents to $2.9117 a gallon, gasoline gained 0.46 cent to finish at $2.8227 a gallon and natural gas futures dropped 2.7 cents to finish at $4.081 per 1,000 cubic feet.

Currencies
The dollar didn’t move very much after Friday’s mixed reports on the US economy.
Retail sales posted a strong jump in July. Consumers spent more than they had in four months. But a survey that measures consumer confidence fell to a 30-year low. Shoppers may not want to spend much if they are worried about their jobs and a diving stock market.
Meanwhile, uneasiness about the health of major economies of countries that use the euro kept a lid on the common currency, despite the gain in European stock markets after regulators moved to protect shares of European financial companies from investors who want to sell them. The dollar was worth 0.7738 Swiss franc from 0.7636 franc late Thursday. The dollar on Tuesday hat hit a record low of 0.7062 Swiss franc. It had dropped more than 30 percent against the currency this year.
Elsewhere on Friday, the dollar rose to 98.94 Canadian cents from 98.65 cents.

Gold
Gold, the traditional safe haven in times of trouble, slipped to $1,736 an ounce from Thursday’s close at $1,760, after having a record high above $1,800 earlier in the week.