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US: IMF warnings slip by European stock markets as oil prices rise

[LONDON] Europe's main stock markets rose on Tuesday, taking in their stride warnings by the IMF that the global economy faces weak growth and possibly severe damage should Britain quit the European Union as oil prices continued to rise.

Despite the Brexit warning London's FTSE 100 index rose by 0.7 per cent, while both Frankfurt and Paris climbed 0.8 per cent.

The International Monetary Fund cut its global growth forecast for the third straight quarter, lowering it by 0.2 percentage points from its January outlook to a sluggish 3.2 per cent expansion for this year.

It said economic activity has been "too slow for too long," and called for immediate action by the world's economic powers to shore up growth.

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The IMF said it was concerned over "fraying" unity in the European Union under pressure from the migration crisis and the "Brexit" possibility.

It said the eurozone should grow a modest 1.5 per cent this year, down from the 1.7 per cent it estimated in January, and slower than the 1.6 per cent seen in 2015.

However the IMF raised its 2016 growth forecast for China, the world's second-largest economy by 0.2 percentage points to 6.5 per cent, citing stimulus plans announced by the government.

Concerns about a sharp slowdown in China, which had supported growth across the world in recent years, had sparked a massive selloff in equities and commodities at the beginning of 2016.

But markets have been cheered by a recovery in the price of oil above US$40 per barrel ahead of this weekend's summit of key oil producers to discuss freezing output levels and easing the supply glut.

While some analysts belive only a production cut, rather than a mere freeze, could permanently boost prices amid weak demand in the oversaturated market, prices have recovered strongly from the lows of below US$30 per barrel struck in January.

Trustnet Direct market analyst Tony Cross said the "US earnings season may have started on a rather muted note, but oil prices continue to gush higher." With prices of other raw materials also rising, "...this is once again galvanising sentiment right across the commodities sector," he said, pointing to a 9.2 per cent gain in mining company Anglo American.

Wall Street stocks pushed ahead as the market prepared for a trove of earnings from big US banks, with the Dow Jones Industrial Average rising 0.9 per cent approaching midday.

Alcoa got the earnings season off to a downcast open after the market close Monday, reporting a steep drop in first-quarter earnings on tumbling aluminium prices and announcing plans to cut as many as 2,000 jobs.

Prices of industrial commodities have been in retreat owing largely to slowing demand from China.

"Concerning the US earnings season, expectations have come down substantially over the past weeks and months mainly due to slowing global growth with little change expected in the months ahead," said Markus Huber, a trader at City of London Markets.

"Because of this many are worried that sooner or later weak corporate profits will drag stocks down too as many studies are pointing out that in the long-term share prices will follow earnings." World markets have been unable to maintain their momentum after the bright run seen in March, with concern growing that central banks may be running out of tools to kick-start growth and inflation.

The euro slid against the dollar while a fall in the yen pushed Japan's stock market higher, leading a Asia-wide advance.


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