Bernanke comments subdue tone in world markets

[December 08, 2009]  LONDON (AP) -- European stocks rose cautiously Tuesday after Asia closed lower as market sentiment was subdued by the Federal Reserve's warning that the U.S. economy will continue to struggle.

In Europe, the FTSE 100 index of leading British shares was up 7.01 points, or 0.1 percent, at 5,317.67 while Germany's DAX rose 18.23 points, or 0.3 percent, at 5,802.98. The CAC-40 in France was 10.87 points, or 0.3 percent, higher at 3,850.92.

The meek start to Tuesday's trading followed a lackluster performance on Wall Street after Fed chairman Ben Bernanke said the world's largest economy was facing "formidable headwinds" -- including a weak job market, cautious consumers and tight credit -- that would limit the pace of recovery.

Bernanke also reaffirmed his pledge to keep interest rates at record lows for an "extended period," dampening mounting expectations the Fed might hike rates sooner than thought after last week's jobs report showed the unemployment rate unexpectedly dropped to 10 percent in November.

David Buik, markets analyst at BGC Partners, said Bernanke's comments provided markets with a "reality check" and as a result there was "little momentum for equities to crack on."

Despite the warning, a number of analysts think Bernanke has sown the seeds for further stock markets gains in the months ahead.

"The bias to central bank policymaking is clear -- if things get worse, they will pump more money in," said Kit Juckes, chief economist at ECU Group. "If things get better, they will do nothing -- reflation continues in other words."

Trading at the moment is also getting increasingly complicated by the upcoming year-end -- many investors are looking to book profits made over the nine-month bull run as they settle down for the Christmas break.

There's a further dearth of economic data on Tuesday for traders to get their teeth in. As a result, Wall Street is expected to show little momentum on the open -- Dow futures were up 23 points, or 0.2 percent, at 10,414 while the broader Standard & Poor's 500 futures rose 2.7 points, or 0.2 percent, to 1,106.40.

The main piece of economic data this week will be Friday's U.S. retail sales figures for November, which will give an early indication into how the Christmas trading period has begun. The state of household spending in the U.S. is key for the global economic recovery -- U.S. consumer spending accounts for around 70 per cent of the nation's economy.

Earlier in Asia, Nikkei 225 stock average lost 27.13 points, or 0.3 percent, to 10,140.47 while Hong Kong's Hang Seng dropped 264.44 points, or 1.2 percent, to 22,060.52.

The news that Japan was moving ahead with $81 billion in new stimulus spending did little to enthuse investors. The world's No. 2 economy grew for the second straight quarter in the July-September period, but falling prices have raised concerns about a cycle of deflation that could hinder the country's rebound.

Elsewhere, Shanghai's market lost 1.1 percent to 3,296.66 while markets in Australia and Taiwan fell about 0.1 percent.

Bucking the downward move, South Korea's key stock measure rose 0.8 percent to 1,627.78.

Oil prices rose modestly, with benchmark crude for January delivery up 25 cents to $74.18 in Asia. The contract fell $1.54 to settle at $73.93 on Monday.

Gold prices were down $1.50, or 0.1 percent, at $1,162.50 an ounce -- way down on last week's record high above $1,225.

The dollar, meanwhile, gave up some of its recent gains, falling 0.9 percent at 88.69 yen while the euro rose 0.2 percent to $1.4847.

[Associated Press; By PAN PYLAS]

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

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