London: World stocks kicked off August in a strong mood yesterday as results from BNP Paribas and HSBC boosted optimism for corporate earnings and the economic outlook for the rest of the year.

BNP Paribas, France's biggest listed bank, rose 4.3 per cent after posting higher-than-expected second-quarter net profit thanks to lower loan provisions and strong retail banking which offset the impact on its business of volatile financial markets.

HSBC said its underlying pre-tax profit rose 30 per cent, sending shares more than four per cent.

Optimism that corporate earnings will maintain the momentum of the global economic recovery even after recent weakness in US data encouraged broad risk taking, pushing world stocks towards last week's two-and-a-half month high.

"The earnings season is doing the trick," said Heino Ruland, strategist at Ruland Research in Frankfurt. "The results are better than expected."

MSCI world equity index rose 0.8 per cent, while the Thomson Reuters global stock index added two thirds of a per cent.

Investor hopes

The FTSEurofirst 300 index gained 1.4 per cent.

Asian stocks rose yesterday on strong corporate earnings and shrugged off news that Chinese manufacturing shrank in July amid investor hopes that the world's fastest growing major economy will expand strongly.

The high-yielding Australian dollar rose, helped by the rise in stocks. The US dollar hit a three-month low against a basket of currencies, hurt by worries that the US economy's recovery is losing steam.

Boom-bust line

HSBC's China Purchasing Managers' Index fell below the boom-bust line of 50 in July for the first time since the depths of the global downturn in March 2009. The index dropped to 49.4 from 50.4 in June. A figure above 50 denotes expansion. HSBC played down the drop, which coincides with signs of weakness in the United States.

Although the index pointed to a month-on-month contraction in manufacturing, it was still consistent with annual growth in Chinese industrial production of 11-13 per cent, HSBC said.

"There is no need to panic because this is just a slowdown, not a meltdown," Qu Hongbin, chief economist for China at HSBC, said in a statement.Financial markets took the drop in the PMI in stride.

Asian stocks extended the morning's rise with the MSCI Asia ex-Japan index up 1.6 per cent as tech and consumer discretionary led gains.

Investors were relieved that a companion PMI, produced for China's National Bureau of Statistics and released on Sunday, held firmly above 50.

Shares of Honda Motor jumped more than 4 per cent after the company reported its best quarterly profit in two years and raised its forecasts despite the sharp rise in the yen.

US worries

The dollar has been hobbled by worries over the US economy after a series of US economic data in the past month undershot market expectations, and its slide has been exacerbated by some bearish signals on technical charts.

The conflict between strong earnings and lacklustre economic news has held US stocks in a tight range throughout July.

Over two-thirds of the S&P 500 constituents have reported earnings with about 80 per cent of those beating analyst forecasts, according to data from Thomson Reuters Starmine.

Investors will look for signs that strong corporate earnings in the United States translate into a pick-up in hiring.

Sluggish jobs growth, marked by a 9.5 per cent unemployment rate, is the biggest obstacle to the economy's recovery from the recession.

Losing momentum

The dollar hit a three-month low against a basket of currencies at $81.393 (Dh298.9) and was seen stuck in a downtrend due to concerns that the US economy's recovery was losing momentum.

The dollar stood near 86.62 yen (Dh3.60), close to an eight-month low of 85.95 yen hit on Friday after US gross domestic product slowed more than expected in the second quarter.

The greenback is within striking distance of a 14-year high of around 85 yen reached in November, fuelling speculation that Japanese authorities could conduct intervention to protect their exporters from a rising currency.

"Excessive foreign exchange moves are undesirable because of the impact they have on the economy and financial markets," Japan's Finance Minister Yoshihiko Noda told reporters.