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LONDON (Alliance News) - Stock markets across the UK and Europe started the week on the back foot Monday amid a disappointing round of eurozone purchasing managers' index data, while the mining stocks provided some support after some similar data from Asia showed an expansion in manufacturing activity.

Data released from Markit Economics overnight showed that the Chinese manufacturing sector expanded for the first time in six months in June, recording 50.8, up from 49.4 in May and beating economist expectations for a reading of 49.7. Meanwhile, Markit also revealed that Japan's manufacturing PMI rose to 51.1 in June, up from the contraction of 49.9 posted in May.

Stock markets across the UK and Europe had been expected to make a positive start to the day in light of the better picture in Asia, but equity sentiment quickly turned negative when far less positive numbers came in from across Europe.

The FTSE 100 has closed down 0.4% at 6,800.56, while the FTSE 250 closed down 0.7% at 15,675.31, and the AIM All-Share closed fractionally lower at 785.20.

Within European majors the French CAC 40 closed down 0.5% at 4,516.68, and the German DAX 30 closed down 0.6% at 9,923.11.

The composite PMI for the whole eurozone slipped to a six month low of 52.8 in June from 53.5 in May, missing economist expectations for the reading to remain stable.

"China saw a positive turnaround in manufacturing but sentiment took a knock when the data from Europe missed already pretty low expectations," said CMC Markets market analyst Jasper Lawler.

Within the eurozone composite data, France was amongst the biggest drag, with the manufacturing PMI there slipping to 47.8 in June from 49.6 in May, while the the Service sector print was also worse-than-expected at 48.2 in June, down from 49.1 in May, against an expectation for a rise to 49.4.

"There remained little sign of any turnaround in the performance of France’s economy at the end of Q2, with output falling for a second successive month and at a faster rate," said Markit senior economist Paul Smith. "On these trends, the economic underperformance of France seems set to persist well into the second half of 2014."

In Germany, the Markit data shows the manufacturing sector continuing to expand, but at a slightly slower rate than expected, with a reading of 52.4 in June, up from 52.3 in May, missing forecasts of 52.5. The service sector PMI in Europe's largest economy slipped to 54.8 in June from 56.0 in May, missing economist expectations for a print of 55.7.

"The ECB’s latest stimulus measures aren’t expected to have any effect for the next few months so with the deteriorating situation in Iraq, the economic data needed to be strong in Europe to fend of the selling pressure," said analyst Lawler.

The better picture in China, which is the biggest source of demand for many of the miners, saw the FTSE 350 mining sector provide supports Monday, closing up 1.4%. The sector was also helped by Lonmin which said that further progress has been made towards a return to work for the striking platinum miners in South Africa. Lonmin closed up 5.4%, while Rio Tinto gained 1.6%, BHP Billiton gained 1.9%, and Fresnillo gained 1.7%.

Kentz Corporation shares rocketed to the top of the FTSE 250 after it finally agreed a takeover offer, after having rejected bids last year from both AMEC and Germany's M+W Group. The agreement is is for Montreal-based SNC-Lavalin to offer 935 pence per share, which represented a premium of 33% to the closing price on Friday. Kentz closed up almost 32% at 929 pence.

ARM Holdings was a strong FTSE 100 performer, closing up 2.1% Monday after Morgan Stanley said that following sector under-performance so far this year, momentum could be turning for the micro-chip maker. ARM makes chips for Apple products, and in a morning note to clients, Morgan Stanley said that due to a strong Apple product cycle in the second-half of the year, ARM's royalty growth could be about to accelerate. However, analysts at Morgan Stanley left their rating at Equal-Weight, saying it is not yet time for an upgrade.

ASOS shares completely recovered from a sell off at the open following a weekend fire at its warehouse and ended the day up 0.2%. AIM-listed ASOS opened as much as 3% lower following the news that about 20% of its stock in the UK had been destroyed in a fire, causing the online retailer to stop taking orders on its website. However, the company said it's fully insured and began taking orders again early on Monday.

The housebuilders underperformed Monday, amid speculation over the timing of the first UK interest rate rise and the possibility of tougher mortgage lending rules being announced in Thursday's Financial Stability Report. Barratt Developments was one of the worst FTSE 100 performers, closing down 2.7%, while fellow FTSE 100 housebuilder Persimmon lost 1.1%.

Writing in the Sunday Telegraph, Monetary Policy Committee member David Miles said the strength of the UK economic recovery meant that he was increasingly likely to vote for a hike before he steps down from the rate setting Committee in May next year. The comments came after Bank England governor Mark Carney sparked the latest round of UK rate rise talk at his recent Mansion House dinner.

Moreover, as part of the BoE's credit conditions survey, which took place in May, before the Mansion House speech, it was noted that mortgage lending continues to increase, while lending to small and medium sized enterprises continues to stagnate. The BoE has already re-targeted its Funding for Lending scheme away from mortgage lending and towards SME's, and has introduced slightly tougher mortgage lending criteria as part of the Mortgage Market Review, seemingly with little effect. All eyes will be on the release of the Financial Stability Report on Thursday for any regulation changes, including any changes to the controversial Help to Buy scheme.

"The summer edition of the Financial Stability Review will be flying off the bookshelves this week. We expect the FSR and the decision from the FPC to focus on the mortgage market and the lack of corporate lending growth," says Shore Capital investment strategist Gerard Lane.

Roadside assistance and insurance group AA saw its share price fall on its first day of trading. After pricing its IPO at 250 pence per share, the shares closed down 8.0% at 230 pence. With nearly GBP3 billion in debt, even after the IPO, "the biggest concern appears to be the amount of debt on the books," said CMC Markets chief market analyst Michael Hewson. Also in its first day of trading Monday, advisory and investment products business River And Mercantile Group rose almost 5% to close at 192.75 pence after pricing its IPO at 183 pence.

US macroeconomic data was notably more impressive than that from Europe Monday. The US Markit manufacturing PMI rose to 57.5 in June, up from 56.4 in May, while the report marked the strongest improvement in overall business conditions since May 2010. "US industry is booming again, with the flash manufacturing PMI hitting its highest for just over four-years in June," said Markit chief economist Chris Williamson.

There was little reaction in the currency market to Monday's divergent data however. At the time of the equity market close, the euro is just fractionally lower against the dollar at USD1.3592, while the pound near flat at USD1.7010.

In the data calendar Tuesday, the German IFO business climate index is due at 0900 BST, followed by the UK British Bankers Association mortgage approvals data at 0930 BST.

Also at 0930 BST, Mark Carney and BoE colleagues will be up in front of the Treasury Select Committee for a hearing on the latest inflation report. Given recent comments from a number of the central bankers, investors will be listening in for any further interest rate rise clues, or indeed hints about what to expect in Thursday's Financial Stability Review.

In the UK corporate calendar Tuesday, full-year results are due from Imagination Technologies, Carpetright, and Immunodiagnostic Systems Holdings. Second-quarter numbers are due from Carnival, along with a trading statement from Petrofac.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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