European stock markets were higher Friday as investors found reasons for cheer in weaker-than-expected US headline growth data as record Spanish jobless figures stoked concerns over the eurozone.
US growth slowed sharply to 2.2 percent in the first quarter from 3.0 percent in the last three months of 2011 but consumer demand held up strongly, suggesting there was some underlying strength, dealers said.
They said that seemed to be enough for Wall Street to open higher, supporting Europe after Spanish unemployment hit a record 24.4 percent and Standard and Poor's slashed the country's rating by two notches.
Madrid, down sharply by 2.65 percent at the open following the S&P downgrade, confounded the gloomy jobless news to show a gain of 1.42 percent.
In foreign exchange deals, the euro picked up to $1.3249 from $1.3240 in New York late on Thursday.
In New York, stocks were firmer despite the bad news leads, with the blue-chip Dow Jones Industrial Average up 0.21 percent in early trade, while the S&P 500-stock index advanced 0.27 percent and the tech-laden Nasdaq rose 0.26 percent.
Dealers there said the headline US growth figures disappointed -- analyst forecasts were for around 2.5 percent -- but there were positive elements in the figures and that allowed the gains.
The report "disappointed, showing output grew at a smaller rate than forecasted but the personal consumption component of the report -- the biggest contributor -- grew more than expected," Charles Schwab & Co. analysts said.
Dealers said that despite the market gains, investors were undoubtedly cautious after a run of weaker-than-expected data all round and with the eurozone likely already in recession overall.
Spanish 10-year government bond yields -- or the rate investors demand in return for handing over their money -- briefly topped the psychological 6.0-percent level, before pulling back, reflecting the concerns over Madrid.
Standard and Poor's downgraded Spain's sovereign credit rating to BBB-plus and added a negative outlook, warning of recession this year and next, making it even harder to meet deficit-cutting targets.
At the same time, the government was increasingly likely to have to pump in funds to help banks, many of which are still burdened by non-performing loans extended during the property bubble, S&P said.
A credit rating downgrade tends to deepen concerns among investors, who in turn demand higher returns. If borrowing costs become unsustainable for a state, it can be forced to seek an economic rescue.
"The next phase of the (eurozone) crisis is focusing on Spanish banks which have seen their balance sheets dented by exposure to the collapse in real estate," said MacKinnon.
"The banks have become significantly dependent on European Central Bank funding. The credit rating downgrade adds to market pressures.
"In addition, there is a growing backlash against austerity policies which are imposing depressionary and deflationary conditions on much of the eurozone."
Source: AFP Global Edition