World stocks fall on grim company earnings

[February 05, 2009]  LONDON (AP) -- World markets fell Thursday, as the drumbeat of ugly corporate earnings undermined optimism over government stimulus measures and urged caution ahead of interest rate decisions later in the day.

Sharp losses at Deutsche Bank, Swiss Re and a weak statement from consumer goods giant Unilever followed similarly grim reports from technology bellwether Cisco Systems Inc. and China's Lenovo Group.

But with interest rate announcements due later Thursday from the Bank of England and European Central Bank, stock movements were somewhat limited.

By mid-morning in Europe, Britain's FTSE 100 index was 0.6 percent lower at 4,205.05 and Germany's DAX down 0.8 percent at 4,456.55. The French CAC 40 fell 1.3 percent to 3,029.02.

That followed losses in Asia, where Japan's Nikkei 225 slipped 1.1 percent to 7,949.65, and China's Shanghai index lost 0.5 percent to 2,098.02.

Markets expected a mixed open on Wall Street. Dow industrials futures rose 5 points, or 0.1 percent, to 7,930 and Standard & Poor's 500 futures fell 1.9, or 0.2 percent, to 827.20.

While sentiment deteriorated because of weak corporate news, investors in Europe were holding their breath ahead of the interest rate decisions.

The Bank of England is expected to cut its key rates by at least half a percentage point from the current 1.5 percent to a new record low. The decision is due at 1200 GMT (0700 EST).

"Ongoing economic deceleration will likely prompt Bank of England to ease monetary policy further," said Mitul Kotecha, an analyst at Calyon in London. "With interest rates approaching zero, we believe that the central bank will likely focus more on unconventional measures to support the economy, such as buying corporate bonds and commercial paper to ease credit conditions."

The more cautious European Central Bank, on the other hand, is expected to hold off for another month at least and leave rates at 2.0 percent. Its announcement will come at 1245 GMT (0745 EST).

"While the latest data would justify that the European Central Bank cuts interest rates further, the bank's signals suggest that rates will remain on hold for now," said Jorg Radeke, economist at the Centre for Economic and Business Research.

In the run-up to the announcements, the corporate news has taken center stage and been mostly poor.

Swiss Re shares dropped as much as 17 percent after it said it needed to raise more money -- including $2.6 billion from U.S. financier Warren Buffett -- after predicting a 1 billion francs ($869 million) loss for the full year.

Deutsche Bank AG, Germany's largest bank, announced a hefty euro4.8 billion ($6.1 billion) net loss in the fourth quarter, resulting in a shortfall for the full year, due to a large trading loss. The company said it expected global economic weakness to continue posing "significant challenges."

Shares in Unilever -- the maker of Dove soaps and Ben & Jerry's ice cream -- fell 4.8 percent despite a 58 percent rise in fourth quarter earnings, as the company scrapped its outlook and investors judged the company is likely to be hurt by lower-priced competition amid the economic crisis.

China's Lenovo Group, the world's fourth-largest computer manufacturer, announced its first quarterly loss in nearly three years and said its chief executive, William J. Amelio, had resigned. Its shares fell 0.7 percent.

Earnings were little better in the U.S. overnight, with leading companies such as Kraft Foods, Walt Disney and Time Warner sending stocks lower.

The reports added to concerns about spending by U.S. consumers, with investors are already bracing for Friday's release of the U.S. jobs report.

The Dow fell 1.5 percent Wednesday, as did broader indicators. The S&P 500 fell 0.8 percent and the Nasdaq composite index slid 0.1 percent.

In Asia, the downbeat earnings sapped early enthusiasm over figures about Chinese manufacturing and lending that suggested the world's third-largest economy was faring better than expected despite slumping demand for its exports. "Governments are coming out with stimulus measures but you can't make the economy and corporate earnings turn around in such a short time," said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. "The global economy is still in the downturn, so we're going to have more bad times."

South Korea's Kospi slid 1.5 percent to 1,177.88, while markets in Australia, India and Taiwan also retreated. In Hong Kong, the Hang Seng rose 0.9 percent at 13,178.90, but closed well off its highs.

Oil prices were little changed in European trade, with light, sweet crude for March delivery trading up 3 cents at $40.35 a barrel on the New York Mercantile Exchange. The contract dropped 46 cents to settle at $40.32 overnight.

The euro strengthened to $1.2880 from $1.2838 late Wednesday. The dollar traded at 89.68 yen, up from 89.45 yen.

[Associated Press; By CARLO PIOVANO]

AP writer Jeremiah Marquez in Hong Kong contributed to this report.

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