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European markets recovered earlier losses and Wall Street opened higher Tuesday, as drug stocks were boosted by speculation that President Barack Obama’s health care plan may be derailed if Republicans win a senate seat in Massachusetts.

In Europe, the FTSE 100 index of leading British shares was up 26.02 points, or 0.5 percent, at 5,520.41 while Germany’s DAX rose 50.51 points, or 0.9 percent, at 5,969.06. The CAC-40 in France was 22.79 points, or 0.6 percent, higher at 4,000.25.

European stocks had been down all day until the U.S. open after some disappointing economic data and concerns about upcoming U.S. corporate earnings.

Even though Citigroup Inc. opened lower after posting a $7.6 billion loss in the final three months of 2009, U.S. stocks actually bounced at the bell.

The Dow Jones industrial average was up 56.74 points, or 0.5 percent, at 10,667.34 while the broader Standard & Poor’s 500 index rose 8.01 points, or 0.7 percent, to 1,144.04.

Notable gainers in the U.S. included Merck & Co. and Pfizer Inc., which both rose 2 percent to top the Dow leaderboard.

“It looks like a Massachusetts win for Republicans is perceived as blocking overhaul of the U.S. health industry so less government interference in pharma pricing,” said Neil Mackinnon, global macro strategist at VTB Capital.

A Republican victory in Massachusetts would represent a big blow to Obama’s plan to reform health care.

A win by Republican Scott Brown would eliminate the Democrats’ 60-seat supermajority in the Senate and imperil some of Obama’s key legislative objectives. The Democrats need all 60 votes to overcome Republican delaying tactics in the 100-seat Senate.

“A Republican victory in what has hitherto proved a Democratic stronghold would put a significant dent in the chances of controversial legislation, including health care reform, being passed by the upper house,” said Jeremy Batstone-Carr, director of private client research at Charles Stanley.

In addition to the election outcome, investors will continue to focus on corporate earnings, which have so far been mixed, with upside surprises from Intel Corp. offset by disappointments from the like of Alcoa Inc.

Banks will be in the spotlight, with Citigroup followed later in the week by Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley.

Over the week, 65 companies in the S&P 500 post their results this week, constituting about a fifth of the S&P’s total value. As well as the banks, earnings from Google Inc., IBM Corp. and McDonald’s Corp. will be closely monitored.

Though attention is primarily on the U.S., investors in Europe have had plenty of news to digest. On the corporate front, Kraft Foods Inc. finally succeeded in persuading Cadbury PLC’s board to accept and recommend to shareholders a takeover offer after improving its bid to $19.5 billion.

Cadbury topped the list of risers on the FTSE 100, gaining just over 3.5 percent to 835.50 pence a share, more or less in line with the offer price of 840 pence a share.

On the economic front, investors in Britain were surprised to hear that the inflation rate spiked to 2.9 percent in December.

The pound rose as high as $1.6457, its strongest level for over a month and by mid-afternoon in London traded at $1.6365, 0.2 percent.

The euro, meanwhile, was hit after the ZEW institute said its main investor confidence index fell for the fourth month running to 47.2 points in January from December’s 50.4. The consensus in the markets was for a far more modest decline to around 50.

“This is adding to the euro’s problems,” said Hans Redeker, global head of foreign exchange strategy at BNP Paribas.

The euro has been on the retreat for the best part of a month partly because of mounting market fears about Greece’s public finances, though they were partly assuaged earlier by a fairly upbeat assessment from the Moody’s credit ratings agency.

The euro was trading 0.7 percent lower on the day at $1.4281.

Earlier in Asia, Japan’s Nikkei 225 stock average slipped 90.18 points, or 0.8 percent, to 10,764.90.

After the market closed, Japan Airlines filed for bankruptcy, ending months-long speculation about its fate and launching a massive overhaul to shed the fat and inefficiency that hobbled Asia’s biggest airline.

JAL shares, which have lost more than 90 percent of their value over the last week, tumbled 20 percent Tuesday to 4 yen before finishing flat at 5 yen. The company is now essentially worthless, with a market capitalization of about 10.9 billion yen ($120 million) — less than the price of one Boeing 787 jet.

Elsewhere, Hong Kong’s Hang Seng gained 1 percent and China’s Shanghai index edged up 0.3 percent.

Most other Asian markets fell. South Korea’s Kospi lost 0.1 percent, Australia’s market shed 1 percent and Taiwan retreated 1.1 percent.

Oil prices rose above $78 before retreating in late afternoon trade. Benchmark crude for February was down 21 cents to $77.79 in electronic trading on the New York Mercantile Exchange.

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

An investor chat with another at a private securities company Tuesday, Jan. 19, 2010 in Shanghai, China. Chinese shares ended mixed Tuesday on uncertainty about the direction of government policy but resource shares climbed on higher commodity prices. The benchmark Shanghai Composite Index edged up 9.78 points, or 0.3 percent, to close at 3,246.87. (AP Photo)

An investor smiles with another at a private securities company Tuesday, Jan. 19, 2010 in Shanghai, China. Chinese shares ended mixed Tuesday on uncertainty about the direction of government policy but resource shares climbed on higher commodity prices. The benchmark Shanghai Composite Index edged up 9.78 points, or 0.3 percent, to close at 3,246.87. (AP Photo)

An investor chat with another at a private securities company Tuesday, Jan. 19, 2010 in Shanghai, China. Chinese shares ended mixed Tuesday on uncertainty about the direction of government policy but resource shares climbed on higher commodity prices. The benchmark Shanghai Composite Index edged up 9.78 points, or 0.3 percent, to close at 3,246.87. (AP Photo)

© 2010 Associated Press. Displayed by permission. All rights reserved.

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