World markets fall as US stimulus rally fades

[February 09, 2009]  LONDON (AP) -- World stock markets mostly fell Monday as a recent rally over the $827 billion U.S. economic stimulus plan and a new bank bailout began to fade.

By noon in mainland Europe, Britain's FTSE 100 was down 0.6 percent at 4,267.96, Germany's DAX fell 0.3 percent to 4,632.58 and France's CAC 40 sank 0.2 percent to 3,115.42.

Stocks advanced strongly last week on expectations the U.S. measures, expected to pass the Senate Tuesday, will dampen the country's deepest recession in decades by stemming massive job losses and increasing spending.

A coming overhaul of the government's $700 billion financial bailout program, to be detailed by Treasury Secretary Timothy Geithner on Tuesday, also has given sentiment a lift. Among new measures under consideration are guarantees to help banks limit losses from their souring assets.

Yet Europe opened down and most markets in Asia gave up much of their gains by the afternoon there. Analysts say much of the rise in Asia had been fueled by investors looking to capitalize on the markets' momentum, not a fundamental shift in sentiment.

"There's still bad macro news and bad corporate news that will outweigh the stimulus hopes in the near term," said Desmond Tjiang, who helps manage $4 billion in Asian equities as a chief investment officer at Fortis Investment Management in Hong Kong.

"After the stimulus package, what other good news can there be? I'm just very cautious."

In London, Barclays PLC was a big gainer after it said its 2008 net profit fell only 1 percent as a one-off gain from its cut-price purchase of the North American operations of Lehman Brothers helped shore up its finances. Shares in Britain's third-largest bank by assets jumped by 7.3 percent.

"Otherwise it's a continued move towards cyclical stocks," said Jane Coffey, head of equities at Royal London Asset Management. "Risk appetite is beginning to pick up. Last week we saw the strongest performances coming through the industrials and mining stocks and even in banks, and that seems to be a general theme continuing today, even though the market is down."

In Paris, shares in Renault SA and PSA Peugeot-Citroen rose 1.9 percent and 4.8 percent after news reports said the French government was set to unveil a bailout plan for the auto industry that includes euro6 billion ($7.7 billion) in loans.

In Asia, Japan's Nikkei 225 stock average fell 107.59, or 1.3 percent, to 7969.03, while South Korea's Kospi was off 0.6 percent at 1,202.69. Singapore and New Zealand stock markets also lost ground.

In Hong Kong, the Hang Seng rose 0.8 percent to 13,769.06 in a volatile session that saw the benchmark turn negative. Stock measures in Australia, Taiwan and India were higher as well.

In the U.S. on Friday, investors looked past abysmal news about the country's job market and instead hoped it would increase pressure on lawmakers to pass the stimulus bill. The Dow industrials rose 2.7 percent to 8,280.59 after rising Thursday. Broader stock indicators also jumped. The Standard & Poor's 500 index rose 2.7 percent to 868.60.

But Wall Street futures sank Monday, suggesting U.S. markets would shed some of last week's gains. Dow futures fell 68, or 0.8 percent, to 8,186, and Standard & Poor's 500 futures were down 9.1, or 1.1 percent, at 858.60.

Earlier in Asia, there were more signs of corporate distress.

In Japan, the government reported a decline in machinery orders, while Nissan Motor Co. said it was slashing 20,000 jobs and had fallen into the red in the fiscal third quarter. Japan's No. 3 automaker also forecast a net loss for the full year through March, providing fresh evidence of the pain Asia's exporters are feeling as Western consumers cut back their spending.

"The economic realities in the United States and Japan are so dire that more investors are becoming skeptical over the U.S. economic and financial bailout plans," said Masatoshi Sato, market analyst at Mizuho Investors Securities Co. Ltd. "Optimism over the U.S. measures that had supported the market is gone."

Meanwhile, Japan's biggest brokerage firm Nomura Holdings tumbled more than 14 percent on news it might be forced to sell more shares to raise capital.

Recent gains in commodities prices boosted raw materials producers and the shipping firms that transport their goods. Australia's BHP Billiton Ltd, the world's largest mining company, gained 3.4 percent. Chinese aluminum producer Chalco advanced 6.7 percent in Hong Kong, helped by an analyst upgrade.

Oil prices gained modestly in European trade, with light, sweet crude for March delivery exchanging hands at $40.51 a barrel, up 34 cents. The contract dropped a dollar to settle at $40.17 a barrel on the New York Mercantile Exchange overnight.

[Associated Press; By LOUISE WATT]

AP writers Jeremiah Marquez in Hong Kong and Shino Yuasa in Tokyo contributed to this report.

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