By Barbara Kollmeyer
European stocks ended higher Friday, with utilities and financial stocks posting particularly strong gains, getting a lift from an unexpected decline in the U.S. unemployment rate.
The Stoxx Europe 600 index rose 0.3% to 285.90, its fourth consecutive gain, giving it a 1.9% advance for the week.
The European benchmark index pared some gains after the release of mixed U.S. labor-market data. The unemployment rate fell to 9% in January, while analysts had expected it to rise to 9.5% from 9.4% in December. However, nonfarm payrolls rose by only 36,000 in January, compared with forecasts for a gain of 140,000.
"We are inclined to dismiss most of today's report as weather-influenced, and as such, we stick to our general story that calls for increasing job creation during 2011," Dan Greenhaus , chief economic strategist at Miller Tabak + Co., said in a note.
U.S. stocks reacted tepidly to the payrolls report. Near midday in New York, the Dow Jones Industrial Average was down 15 points, or 0.1%, at 12047, while the Nasdaq Composite edged up at 2755. The Standard & Poor's 500 index was off 0.2% at 1305.
U.S. Treasurys sank for a fifth straight session as some investors took the unexpected drop in the jobless rate as a good sign for the economic outlook. An extra punch came as many dealers prepared for $72 billion in new Treasury sales in the coming week. The benchmark 10-year Treasury note was down 28/32 to yield 3.658%.
The euro sank as the dollar picked up steam in the wake of the jobs report. The euro hit an intraday low of $1.3543 but had recovered to $1.3573 around midday, down from $1.3635 late Thursday in New York. The dollar rose to 82.35 yen from 81.57 yen, the British pound was at $1.6086 from $1.6144, and the dollar was at 0.9573 Swiss franc from 0.9454 franc.
Brian Gallagher , strategist at Dolmen Stockbrokers, said Thursday's rhetoric from U.S. and European central banks helped support European markets.
European Central Bank President Jean-Claude Trichet "was less hawkish on inflation," meaning the accommodative monetary policy stays in place, he said. At the same time, Federal Reserve Chairman Ben Bernanke sounded more upbeat about the U.S. economic outlook, boosting investor sentiment, Mr. Gallagher said.
In London, the FTSE 100 index gained 0.2% to 5997.38 to finish the week up 2%. Cairn Energy fell 2.7% on concerns over its deal to sell its stake in Cairn India to Vedanta Resources. Vedanta rose 0.9%.
Barclays /zigman2/quotes/206581728/composite BCS +2.24% rose 2.4% as Goldman Sachs upgraded Europe's banking sector to "overweight" from "neutral."
"We believe that as the market reprices sovereign risks, banks are likely to continue to outperform as the contagion risk premium—and thus banks' funding costs—decrease," the broker said in a note.
However, in Spain, BBVA fell 1.1% and Banco Santander dropped 0.8% after Deutsche Bank downgraded them to "hold" from "buy," saying fourth-quarter results "failed to provide the comfort we needed."
In Paris, the CAC 40 index gained 0.3% on the day and 1.1% for the week to 4047.21. Building-materials firm Compagnie de Saint-Gobain /zigman2/quotes/209782682/delayed JP:5401 -0.33% rallied 3.6% after Royal Bank of Scotland reiterated its "buy" rating on the stock. HeidelbergCement climbed 3.1%.
In Frankfurt, the DAX 30 index rose 0.3% to 7216.21 to a 52-week high. The index rose 1.6% for the week. Friday's gain came on the back of a 2.5% rise for Deutsche Bank /zigman2/quotes/205537285/delayed DE:MUV2 +0.19% . Bernstein Research raised earnings and price targets, saying the lender is an attractive near-term opportunity.
Munich Re /zigman2/quotes/205537285/delayed DE:MUV2 +0.19% rallied 2.7% after J.P. Morgan Cazenove upgraded the stock to "overweight" from "neutral."
Elsewhere in the insurance sector, Aviva rose 2.9%, Prudential PLC /zigman2/quotes/205760760/composite PUK -0.58% advanced 2.3% and Standard Life added 2%, all in London.
In other market action: Utilities posted strong gains after Bank of America Merrill Lynch upgraded Severn Trent and United Utilities Group /zigman2/quotes/203908003/delayed UK:UU -0.95% to "buy" from "neutral." Severn rallied 3.6% and United Utilities surged 4.3%.
Luxury-goods firm LVMH Moet Hennessy Louis Vuitton /zigman2/quotes/205533138/delayed UK:MRW +1.15% slipped 2.4% in Paris after its profit from continuing operations fell short of market expectations.
Cosmetics company L'Oreal rose 1% after an upgrade to "overweight" from "equal-weight" at Morgan Stanley, which said its valuation was more attractive now than at any point in the past year.
William Morrison Supermarkets rose 2.8% after its rating was raised to "buy" from "neutral" at UBS.
Swedish truck maker Volvo rose 2.7% after the group swung to a fourth-quarter profit from a year-earlier loss, as orders for trucks nearly doubled.
Write to Barbara Kollmeyer at Barbara.Kollmeyer@dowjones.com