By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- A stronger-than-expected nonfarm payrolls report from the U.S. sent European stock markets higher in afternoon action on Friday, erasing earlier losses fueled by a downbeat assessment on the German economy.
The Stoxx Europe 600 index rose 0.1% to close at 279.17, after trading as low as 278.26 earlier in the day. On the week, the index closed 1.2% higher.
Stocks rebounded in the afternoon after nonfarm-payroll data from the U.S. showed 146,000 jobs were added to the economy in November, far exceeding the 80,000 expected by economists polled by MarketWatch.
The unemployment rate dropped to 7.7% versus expectations for an unchanged reading of 7.9%.
U.S. stock traded mixed on Wall Street, as consumer-sentiment data missed expectations.
"I think you have to be careful to read too much into these numbers [nonfarm-payrolls]. There are in so many ways a lot of noise in this, with Superstorm Sandy, Thanksgiving and the U.S. election distorting the data," said Henrik Drusebjerg, senior strategist at Nordea in Copenhagen.
"More and more people are focusing on the fiscal cliff negotiations and what I'm mostly worried about is that we'll see the same turbulence as we saw in August last year during the debt-ceiling discussions. Back then, markets didn't react before the uncertainty showed up in the macro data and I'm worried about the macro data now," he said.
The fiscal cliff refers to automatic spending cuts and tax hikes slated to take effect in the new year, unless Democrats and Republicans agree on a deal to avert it.
Among notable movers in Europe, shares of Deutsche Telekom AG dropped 1.9%, after the firm late Thursday said it would cut dividends for next year to 0.5 euro ($0.65).
Shares of Norsk Hydro ASA slumped 2.4%, after Nomura cut the aluminum producer to reduce from neutral.
Drug makers were among best performing sectors, with Sanofi SA (SNY) and Novo Nordisk AS (NVO) both rising 0.7%. Shares of Roche Holding AG climbed 0.9% after Morgan Stanley lifted the firm to overweight from equal weight.
Most stocks had earlier in the day traded in negative territory, as hopes that the European economy will soon recover were dashed, after Germany's central bank downgraded its forecast for Europe's largest economy.
The Bundesbank said it now expects gross domestic product to grow 0.7% this year, but growth will ease to 0.4% next year, down from its previous estimate of 1.6%. It also said that unemployment could edge up to 7.2% in 2013 from an expected 6.8% this year, before falling back to 7% in 2014.
In addition, data showed industrial production for October fell 2.6%, a steeper decline than expected by analysts.
"Germany has been the stronger economy in Europe and signs that they are struggling are bad for markets," said Richard Perry, chief market strategist at Central Markets.
"The euro has been hit hard again and is back below $1.30, which is a psychological level that has been broken," he said.
The downbeat forecasts come just a day after the DAX 30 index surged to its highest closing level in almost five years on the back of surprisingly strong factory-order data.
The index closed 0.2% lower at 7,517.80 on Friday, with shares of Deutsche Bank AG (DB) down 1.1% and Commerzbank AG off 0.8%. The DAX, however, closed out the week with a 1.5% gain.
Italian stocks underperform
Italy's FTSE MIB index underperformed its European peers, as questions about how long Prime Minister Mario Monti can last as the country's front figure started to arise.
Former Prime Minister Silvio Berlusconi's People of Liberty Party on Thursday withdrew its support for Monti's unelected technocratic government.
The index sank 0.9% to 15,699.22 and was down 0.7% on the week, with shares of UniCredit SpA off 1.3%.
Greece's Athens General Index , on the contrary, rallied 1.1% to 840.73 with a 3.9% weekly gain. The Wall Street Journal reported that Greek banks are prepared to sell back their entire stock of Greek government bonds as part of the country's debt-buyback program. Deadline to participate in the plan is at 5 p.m. London time, or noon eastern.
And in the U.K. shares of mining firms were on the rise, as most metals prices moved higher after the U.S. labor data. Shares of Rio Tinto PLC (RIO) rose 0.6% and Antofagasta PLC picked up 0.8%.
The FTSE 100 index gained 0.2% to 5,914.40, sending it 0.8% higher on the week
France's CAC 40 index gained 0.1% to 3,605.61. It closed out the week 1.4% higher.
Shares of Publicis Groupe SA rose 0.9%, after the advertising group said it bought two different agencies in India as part of its strategy to develop in emerging markets.
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