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European shares turn positive as slow U.S. job growth eases rate hike fears

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By Matteo Allievi and Shubham Batra

(Reuters) -European shares turned positive on Friday after U.S. job growth slowed more than expected in June, boosting hopes of fewer rate hikes by the U.S. central bank than previously feared.

The pan-European STOXX 600 index rose 0.1%, led by a 1.3% increase in chemicals shares. However, equities were still on track for their worst week since mid-March.

UK’s FTSE 100 index was down 0.4%.

Non-farm payrolls increased by 209,000 jobs in June, the Labor Department said, shy of the 225,000 estimate by economists polled by Reuters. The unemployment rate slipped to 3.6% from 3.7% in May, indicating the labor market remains tight.

“Jobs growth has slowed but remains too strong to justify an extended Fed pause. More significantly, with average hourly earnings surprising to the upside, wage pressures are still too strong,” said Seema Shah, chief global strategist at Principal Asset Management.

“Today’s report will give the Fed little reason to hold off from hiking at the July meeting.”

Traders stuck to bets the Fed will raise its benchmark interest rate this month to a 5.25%-5.5% range, but were sceptical of further hikes beyond that.

European equities took a hit this week as hawkish messages from central banks pushed investors to believe interest rates will remain high for longer despite growing risks of a recession.

Earlier in the day, German industrial production fell 0.2% in May compared with the previous month. Analysts polled by Reuters had predicted that output would stagnate in May.

Among the top gainers on the STOXX index, Coca Cola HBC AG jumped 4.5%, after the bottler raised its 2023 profit expectation.

Clariant rose 4.5% after paring losses as the company’s preliminary second-quarter results showed weaker sales and outlook for current financial year.

Top loser on the index, OSB Group dropped 27.6%, to hit its lowest since October 2022 after the British lender flagged an up to 180 million pound ($229.4 million) hit as customers refinance their mortgages earlier than forecast.

Markets will closely monitor comments from European Central Bank President Christine Lagarde, after markets close, to assess the central bank’s interest rate path.

(Reporting by Matteo Allievi in Gdansk, Shubham Batra and Ankika Biswas in Bangalore; Editing by Janane Venkatraman and Shinjini Ganguli)

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