The Coming Week in Europe: German Markets Looking to U.S. to Lead Them Into Record Territory

Frankfurt is hoping New York will clear a clean path for it to follow.
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BERLIN -- As the year comes to a close, a lot is being made in the U.S. of the renewed vigor behind the stock market. The

Dow

is stepping with a little more authority and the

Nasdaq

is roaring ahead. Of course, U.S. indices aren't the only ones getting in on the action.

This fall, bourses across the Continent have been waging a multifront battle against Europe's bearish investors. Up 15% in the last three months, the coming week could see Frankfurt's

Dax

index break an all-time high set in July 1998.

The index consolidated its recent surge last week and will likely flirt with the long-awaited 6200 level as early as Monday. Market participants are expecting considerable volatility, however, until there is a convincing break above the old record. The

Neuer Markt's

tech-heavy

Nemax All Share Index

is also lurking just below its all-time high set back in February.

Whether the Dax and Neuer Markt can swing to a higher branch next week will partly depend on where the U.S., the alpha chimp of equity markets, leads. With the giddy abandon some U.S. investors have been showing lately, Frankfurt is hoping New York will clear a clean path to follow.

Sector-wise, telecoms will remain the flavor of the week in the wake of Friday's announcement that

BellSouth

(BLS)

is blocking

France Telecom's

(FTE)

attempt to buy German wireless operator

E-Plus

. With BellSouth's blessing, Dutch telco

KPN

(KPN)

will instead step in to buy 77.5% of E-Plus for more than $9 billion. The ongoing

Vodafone AirTouch

(VOD) - Get Report

-

Mannesmann

takeover saga should also continue to stir up the cross-border telco fandango, as the companies sling a steady slew of rhetoric across the North Sea.

Economic data for Europe's largest economy could also bolster the bourses next week. The

Ifo

index on November German business confidence is to be released on Thursday. Business sentiment has been surging in recent months as the country's recovery picks up and the weak euro has helped exporters send their goods abroad.

"Confidence in expected business

has been improving rapidly with output expectations climbing on the back of strengthening exports," says Nigel Anderson, an economist with

Greenwich NatWest

in London. That could lead investors to favor those shares expected to benefit from the economic upsurge in the months after the Ifo report is published.

That high-octane mix of cyclical and tech/telecom issues should fuel Frankfurt and other European bourses not only through the coming week but also into the new year and beyond. Assuming, of course, America's 800-pound gorilla continues to lead the pack.