European Stocks Drift; Pound Up Versus Dollar

The pound gained ground against the dollar Friday after Bank of England governor Mervyn King said a recovery was finally in sight for the U.K. economy. Meanwhile, European stocks wavered between small gains and losses as investors paused for breath after the benchmark Stoxx 600 closed at a near five-year high Thursday.

The previous session saw the benchmark Stoxx 600 end at 298.52 -- its highest close since June 2008. Across the pond, the Dow Jones Industrial Average rose for a tenth straight day -- its longest winning streak since November 1996 -- while the S&P 500 ended at 1563.23, less than two points shy of the record close of 1565.15 reached in October 2007.

Autos were the worst performers in Europe, with the Stoxx 600 index for the sector down 0.6%. Volkswagen led the sector decline, down 2% after confirming a placing of 5.8 million of its preferred shares.

Still, this was somewhat offset by strength in basic resources. The Stoxx 600 index for the sector added 0.7% amid rising base and precious metals prices.

Among individual stocks, Vivendi shares slid 3% after the company said late Thursday that it was suspending the sale of its Brazilian telecommunications operator after months on the block.

In currency markets, the pound found support against the dollar following comments late Thursday from Bank of England governor Mervyn King, who said the decline in sterling had probably run far enough and that there is momentum behind the recovery that is coming.

Forex strategists at Morgan Stanley said King's comments represent a U-turn from previous remarks made in the quarterly inflation reports praising the advantages of a weak currency. "King suggesting the economy is gaining expansionary momentum outside the depressed energy and construction industries will allow sterling to retrace some of the 7% decline witnessed since the start of the year," said Morgan Stanley.

Still, not everyone was convinced and market participants noted that the currency was due a bounce and had already started to rally before King's comments.

The second day of the European Union summit gets under way later. In terms of data, euro-zone harmonized inflation is at 1000 GMT. In the U.S., Empire State manufacturing and the consumer price index are at 1230 GMT, industrial production is at 1315 GMT and University of Michigan confidence is due at 1355 GMT.

Write to Michele Maatouk michele.maatouk@dowjones.com

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