Optimism rules on the world's largest economy

Last week's slew of reports underpinned the cautiously upbeat outlook for the US, even though one showed an unexpected contraction in American GDP in the fourth quarter.

On Friday, data showed that US payrolls rose 157,000 in January, with a substantially revised 196,000 gain in the prior month and a 247,000 climb in November. The jobless rate rose to 7.9 per cent from 7.8 per cent. Separate reports provided evidence of better-than-expected strength in manufacturing and a surprise gain in confidence of the US consumer.

"All the data seems to keep pointing to a slowly, steadily improving economy," Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago, told Reuters.

Indeed, Federal Reserve Bank of St. Louis President James Bullard said he expects growth will accelerate enough to let the central bank reduce its asset purchases as early as the middle of the year.

"We should think about tapering or adjusting the program," Bullard told Bloomberg in an interview on Friday. "If you get some good data for a couple of months, maybe you'd say, 'Okay, we go back to US$75 billion per month instead of US$85 billion or something like that.'"

Fresh economic clues over the coming days will come in the form of reports on factory orders, due Monday, the ISM non-manufacturing index, due Tuesday, productivity and costs, due Thursday, as well as international and wholesale trade, both due Friday.

Overall, US corporate earnings have also provided investors enough reason to pile more funds into stocks, helping the Standard & Poor's 500 Index to its best January since 1997.

The S&P 500 climbed 5 per cent last month.

The index may rise to 1,543 by year-end, compared with its October 2007 record of 1,565.15, according to the average of 15 strategists surveyed by Bloomberg on January 22. On Friday, the S&P 500 closed at 1,513.17.

The Dow Jones Industrial Average also continued its ascent to another five-year high, closing at 14,009.79 on Friday.

"There's a lot of momentum for stocks even after such a good start to the year," Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, told Bloomberg. "Earnings are strong, the economies around the world are bottoming and valuations are attractive."

About 73 per cent of the 254 S&P 500 companies that have released results so far this earnings season have beaten profit projections, and 65 per cent have beaten sales estimates, according to Bloomberg.

Overall, S&P 500 fourth-quarter earnings are estimated to have increased 4.4 per cent, according to Thomson Reuters data, up from a 1.9 per cent forecast at the start of the earnings season but falling short of the 9.9 per cent profit growth forecast on October 1.

Walt Disney, Coca-Cola Enterprises and Visa are among the companies reporting their latest earnings this week.

The spotlight will also be on Dell. A buyout consortium led by founder and CEO Michael Dell and private equity firm Silver Lake is negotiating to take Dell private at US$13 to US$14 per share, Reuters reported, citing people familiar with the matter. The deal could top US$24 billion. On Friday, the stock closed at US$13.63.

In Europe, the benchmark Stoxx 600 Index slid 0.5 per cent last week.

Investors will eye a meeting by the European Central Bank on February 7. The ECB is widely expected to hold its benchmark interest rate at 0.75 per cent.

Bank of England policy makers, meeting the same day, are also seen keeping the key rate at 0.50 per cent.

Late this week European Union leaders also return to the table in a renewed effort to seek an agreement on the region's budget for 2014-2020 after failing to reach agreement in November.