European stocks higher on Citigroup rescue

[November 24, 2008]  LONDON (AP) -- European stock markets rose Monday after Friday's strong close on Wall Street and on relief that the U.S. government is providing a lifeline to ailing banking giant Citigroup.

The FTSE 100 index of leading British shares was up 174.98 points, or 4.6 percent, at 3,955.95, while Germany's DAX was 162.51, or 3.9 percent, higher at 4,289.92. The CAC-40 in France was up 140.36, or 4.9 percent, at 3,021.62.

"Equities have started the week with a significant bounce as traders look to exploit the Dow's 500 point gain on Friday and news that Citigroup will now be bailed out by the U.S. government may also have the potential to add some stability to the troubled banking sector on both sides of the Atlantic," said Matt Buckland, a dealer at CMC Markets.

The Dow surged more than 6 percent as U.S. President-elect Barack Obama appeared ready to tap the New York Federal Reserve chief Timothy Geithner as the next treasury secretary, an appointment which reassured investors.

Wall Street was not expected to continue its rally when it opens later. Dow futures were down 42 points, or 0.5 percent, at 7,994, while Standard & Poor's 500 futures were up 1 point, or 0.1 percent, at 793.

Earlier, the news that the U.S. government would take a $20 billion stake in Citigroup and guarantee hundreds of billions of dollars in risky assets helped several Asian markets pare early losses, but not by much. Japanese markets were closed due to a public holiday.

Hong Kong's Hang Seng index was down 210.26 points, or 1.6 percent, at 12,457.94, while Australia's key index recovered from morning losses to close 0.3 percent higher.

Investors were awaiting a slew of U.S. economic data this afternoon on the housing sector and consumer confidence to get a gauge on the current health of the world's largest economy.

Overall, markets appear relieved that the rescue plan for Citigroup removes the immediate risk of a potentially catastrophic banking collapse but conceded that by itself it doesn't resurrect the U.S. economy, which many analysts believe is sliding into its worst recession in decades.

For many investors, the bailout will do little to quickly restore confidence in the U.S. banking system or revive lending to consumers as the vital Christmas shopping season approaches.

Recession fears in Germany mounted Monday after a closely watched survey showed that Europe's biggest single economy is weakening at an alarming rate.

The Ifo Institute said its main business climate index fell to 85.8 points in November from 90.2 points in October. The last time it was that low was in February 1993.

Analysts said the data means that the recession in Germany, confirmed officially by government figures, will likely be deeper than many anticipate.

"With the rapid decline in business sentiment lately showing absolutely no sign of letting up, the European Central Bank will have become more concerned about the outlook for the real economy," said Jennifer McKeown, European economist at Capital Economics.

More and more economists now think that the European Central Bank may cut its benchmark interest rate next month from the current 3.25 percent by more than the half a percentage point it cut at its meeting in early November.

In Britain, all eyes will be on the government's pre-budget report. Finance minister Alistair Darling is expected to unveil a set of measures to stimulate the British economy, which declined by a quarterly rate of 0.5 percent during the third quarter.

Markets will be particularly focused on how the government plans to get out of the recession and how it plans to raise money in the coming years as borrowing heads up to around 8 percent of Britain's gross domestic product.

In Asia, South Korea's Kospi slid 3.4 percent to 970.14. Markets in Singapore, Thailand, India and Malaysia also fell. Japan was closed for a holiday.

In mainland China, stocks were down mostly in dismay that authorities did not announce an interest rate cut over the weekend as some investors had speculated. The Shanghai Composite index fell 3.7 percent to 1,897.06.

Oil prices fell in Asian trade, with light, sweet crude for January delivery down 27 cent to $49.66 a barrel in electronic trading on the New York Mercantile Exchange by midmorning London time.

In currencies, the dollar weakened 0.6 percent to 95.28 yen, while the euro was up 0.6 percent at $1.2662.

[Associated Press; By PAN PYLAS]

AP business writers Jeremiah Marquez in Hong Kong, Stephen Wright in Bangkok and Joe McDonald in Beijing contributed to this report.

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