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September 24, 2017

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European stocks falter ahead of US data and Italy vote

LONDON -- Oil prices rose Thursday, building slightly on a surge triggered by OPEC's output decision, while European stock markets retreated as attention switched to U.S. jobs data and Italy's weekend referendum.

World crude prices soared almost 10 percent on Wednesday after OPEC hammered out a deal to cut oil output for the first time in eight years. They were up a much more modest 1 percent in Thursday trading.

Joshua Mahony, market analyst at IG trading group, said that "whilst yesterday's announcement was over and above expectations, there still remain a number of hurdles to curing the oversupply evident in the oil market."

He added: "European markets also have Italian clouds looming, with the referendum providing the most significant risk event ahead despite tomorrow's U.S. jobs data."

The OPEC exporters' group, meeting in Vienna, said its 14 members had agreed on specific targets that will reduce production by 1.2 million barrels a day from next month, while key non-member Russia also committed to a reduction.

The agreement ended weeks of uncertainty and volatility on crude markets as the key players bickered over who would shoulder the biggest burden of the cuts.

It also lit a fire under energy companies' share prices.

"The words 'OPEC' and 'exceed expectations' have rarely, if ever, been used in the same sentence. However yesterday's production deal seems to have done just that," Oanda senior market analyst Jeffrey Halley wrote in a note to clients.

"Cuts have been shared across all members, including the recalcitrant Iran and Iraq."

Asian stock markets, playing catch up with Wednesday's reaction on European and U.S. indices, closed higher Thursday.

Adding to the buying sentiment was a better-than expected reading on Chinese factory output that provided fresh hope the world's No. 2 economy was stabilizing after years of slowing growth.

In foreign exchange, the dollar rallied to its highest mark since February and close to 115 yen, before easing.

Gold suffered a sell-off, falling to a near 10-month low at US$1,162.11 an ounce, as investors walked away from safe-haven assets that are popular in times of uncertainty.

Focus now turns to the release Friday of U.S. jobs data. With dealers certain the Federal Reserve will hike interest rates this month, the figures could provide some insight into its plans for future increases over the next year.

And on Sunday, Italy votes on constitutional reform.

Tensions between Italian Prime Minister Matteo Renzi and the European Union have reached boiling point ahead of the poll and he has suggested he would step down if voters reject the proposal.

There are fears his resignation could spark elections in which populist anti-euro parties could do well, and possibly even lead to the country leaving the EU. The unease hit European banking shares earlier in the week.

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