European stocks rallied from the biggest weekly drop in almost four months, Spanish bonds gained and the euro erased earlier losses as stress-test results bolstered confidence in Spain’s banking system. Commodities fell as manufacturing weakened in China and Japan. The Stoxx Europe 600 Index (SXXP) gained 0.9 percent as of 10:54 a.m. in London, while futures on the Standard & Poor’s 500 Index advanced 0.4 percent. Spanish 10-year yields slid a third day, declining six basis points to 5.88 percent. The euro rose against all but one of 16 major peers. The S&P GSCI gauge of 24 commodities lost 0.1 percent, led by a 1.3 percent drop in zinc. Spanish stress tests reported a capital deficit of 59.3 billion euros ($76 billion), less than the 100 billion euros agreed as part of a bailout. Euro-area manufacturing contracted less than initially estimated in September, Markit Economics said today. Chinese factory output weakened for a second month and big Japanese manufacturers became more pessimistic in the last quarter, according to the findings of official surveys. Unemployment in the euro area reached the highest on record. “The stress tests are another hurdle overcome in easing the sovereign-debt crisis,� said Henk Potts, an equity strategist at Barclays Plc in London. “It’s absolutely right to rally on the back of the tsunami of stimulus we have seen.� All 19 industry groups in the Stoxx 600 advanced as the gauge rebounded from last week’s 2.7 percent plunge, the biggest weekly decline in almost four months. Xstrata Plc rose 3.2 percent in London trading after its board recommended shareholders accept a $33 billion takeover offer by Glencore International Plc. Glencore, the world’s biggest commodities trader, climbed 0.7 percent. Airline Profit Air France-KLM Group (AF) and International Consolidated Airlines Group gained more than 2 percent as the International Air Transport Association raised its 2012 global airline profit forecast by 37 percent. The S&P 500 lost 1.3 percent last week, the worst performance since June, on concern Europe’s debt crisis will worsen and global stimulus measures may not be enough to boost economic growth. Unemployment in the economy of the 17 nations using the euro was 11.4 percent in August, the same as in June and July after those months’ figures were revised higher, the European Union’s statistics office in Luxembourg said today. An Oct. 5 report is forecast to show the U.S. jobless rate rose to 8.2 percent last month from 8.1 percent in August, economists surveyed by Bloomberg estimated. Italy’s 10-year bond yield fell two basis points to 5.07 percent, while the rate on similar-maturity German bunds climbed three basis points to 1.47 percent. Ten-year Treasuries were little changed after two straight weeks of gains, leaving the yield at 1.63 percent. Euro Manufacturing The euro rose 0.3 percent to $1.2896 and 0.4 percent to 100.58 yen. It earlier weakened 0.4 percent against both. A gauge of manufacturing in the 17-nation euro area based on a survey of purchasing managers was 46.1, a six-month high and above an initial estimate of 46 on Sept. 20, according to Markit. The index (SPX), which stood at 44 in July, has held for 14 months below 50, indicating contraction. The MSCI Asia Pacific Index slipped 0.4 percent as about two stocks fell for every one that rose. Toyota Motor Corp., the world’s biggest carmaker by market value, lost 1.7 percent in Tokyo. Financial markets in China, Hong Kong and South Korea were closed for holidays. China’s Purchasing Managers’ Index was 49.8 in September after a 49.2 reading in August, according to a report today by the National Bureau of Statistics and the China Federation of Logistics and Purchasing. In Japan, the Tankan index for large manufacturers fell in the July to September quarter to minus 3 from minus 1, the fourth negative reading, the Bank of Japan said today. Lead Drops The S&P GSCI fell for the first time in three days, led by oil and metals. Oil dropped to $92.03 a barrel. Lead slipped 1.2 percent and aluminum retreated 0.8 percent. Natural gas advanced 1.8 percent and corn jumped 0.5 percent. Credit-default swaps insuring European corporate debt fell from near the highest in a month, with the Markit iTraxx Crossover Index of 50 mostly junk-rated companies declining seven basis points to 562. The Markit iTraxx SovX Western Europe Index of swaps tied to 14 governments dropped four basis points to 144 basis points. To contact the reporters on this story: Rob Verdonck in London at rverdonck@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net. To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net.

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