European markets' gains capped by Madoff concerns

[December 15, 2008]  LONDON (AP) -- Europe's stock markets rose modestly Monday amid renewed hopes for a U.S. auto sector bailout, but the gains were limited by worries about the exposure of financial institutions to an alleged $50 billion fraudulent investment scheme in the U.S.

The FTSE 100 index of leading British shares was up 34.40 points, or 0.8 percent, at 4,314.75, while Germany's DAX was 72.11, or 1.6 percent, higher at 4,735.48. The CAC-40 in France rose 20.30 points, or 0.6 percent, to 3,233.90.

Europe's indexes were underperforming those in Asia. Tokyo's Nikkei 225 index jumped 428.79 points, or 5.2 percent, to 8,664.66 points, and Hong Kong's benchmark Hang Seng index added 288.56, or 2 percent, to 15,046.95 points.

Richard Hunter, chief strategist at Lansdown Hargreaves stockbrokers in London, said investors were concerned about the exposure of some of Europe's leading banks to hedge funds managed by arrested Wall Street investment manager Bernard Madoff. The former head of the Nasdaq stock exchange is accused of running a $50 billion scheme to defraud investors.

"That's probably been a drag on sentiment," he said.

Already Royal Bank of Scotland Group PLC -- one of Britain's largest banks, which is now 58 percent owned by the British government -- said it would lose 400 million pounds ($600 million) if the assets of Madoff's funds turn out to be worth nothing. Banco Santander, the largest bank in the euro zone by market capitalization, said its clients have euro2.33 billion ($3.07 billion) in exposure while France's largest bank, BNP Paribas, said its exposure could cost it as much as euro350 million.

The alleged fraud on Wall Street has also weighed on expectations about how U.S. shares will start the last full trading week of the year. Futures were predicting that the Dow Jones industrial average will open 47 points, or 0.5 percent, lower at 8,617.00, while the broader Standard & Poor's 500 index was projected to open 6.80 points, or 0.8 percent, down at 878.60.

There's a raft of economic news due for release this week, though the U.S. Federal Reserve's latest interest rate decision on Tuesday will likely dominate the attention of markets.

Though the markets were undecided about whether the Fed will cut its benchmark interest rate another half percentage point or three quarters of a percent from the current 1.0 percent, there will be more interest in what the Fed says in its statement accompanying the rate decision.

Earlier, Asian stocks rebounded after the Bush administration revived hopes of a bailout for troubled U.S. automakers and China announced a multibillion dollar plan to spur consumer spending.

Japanese shares led Monday's gains even as the country's central bank released figures showing confidence at major manufacturers marked its sharpest drop in 34 years.

China also largely shook off more bad news about waning factory output. Shanghai's key index rose 0.5 percent to 1,964.37 after Saturday's announcement from the central government to increase the amount of money circulating in the economy next year to boost consumer spending.

Beijing's latest effort to keep the world's fourth-largest economy on track seemed to overshadow news that growth in China's factory output fell to its lowest level in nearly seven years. According to the government, industrial output rose 5.4 percent in November from a year earlier, down from October's 8.2 percent growth, as trade plunged.

South Korea's Kospi rose 4.9 percent to 1,158.19 and major stock measures in Taiwan, India, Australia and Singapore were higher by about 2 percent or more.

The dollar weakened 0.4 percent to 90.67 yen, but still above the 13-year low of 88.16 yen it hit intraday Friday. The euro was 0.6 percent higher at $1.3463.

Light, sweet crude for January delivery was up $2.03 to $48.31 a barrel on expectations of a big production cut from oil cartel OPEC later in the week.

[Associated Press; By PAN PYLAS]

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

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