European markets lower as energy stocks slump

[January 27, 2009]  LONDON (AP) -- European markets fell Tuesday as a slump in energy and mining stocks offset the renewed confidence in the financial sector and a small recovery in German business confidence.

Investors looked through the German economic data, skeptical that it could herald a turnaround in Europe's largest economy anytime soon, and remained cautious before the release of key U.S. consumer confidence figures later in the day.

Germany's benchmark DAX share index was 0.8 percent lower at 4,291.37. Britain's FTSE-100 index fell 1.3 percent to 4,153.40, while the French CAC 40 was 1.0 percent lower at 2,926.78.

The indexes opened weaker as investors took profits on Monday's gains, with energy stocks falling most. Expectations that weaker economic growth this year will curb demand has put the sector under pressure and offset renewed optimism in financial stocks after Barclays said Monday it expected a healthy profit.

Investors derived little comfort from the German Ifo Institute's survey showing its forward-looking business climate index rose to 83 points in January from 82.7 in December.

Jennifer McKeown, European economist at Capital Economics in London said the rise "suggests that, following European Central Bank interest rate cuts and a German fiscal package, businesses might be seeing some light at the end of the tunnel."

However, she said "January's small increase provides only limited encouragement given that it remains close to a record low."

The Ifo institute also warned it should not be read as a "turnaround" in the economy, as the figures were still weak and sentiment about current economic conditions continued to fall.

European stocks in fact edged lower after the release of the survey, despite a rise in Asian markets and banking shares.

Japan's Nikkei 225 jumped 378.93 points, or 4.9 percent, to 8,061.07, while Australia's S&P/ASX200 index rose 3 percent to 3,444. India's Sensex also advanced, gaining 3.6 percent to 8,982.30.

With much of Asia closed for holidays on Monday, Tuesday's gains were largely a case of playing catch-up. European stocks had been boosted Monday when Barclays PLC surprised investors by releasing a statement showing it had made a solid profit for 2008 and that it did not need any cash bailouts to stay in business. Its shares rose an astonishing 73.2 percent Monday.

The news "immediately raised hopes that banks may be able to weather the current risks facing the global financial sector," said Motomi Hiratsuka, head of sales trading at BNP Paribas in Tokyo. "But it remains to be seen how long this (boost in sentiment) will last."

Major Japanese financial stocks rose, with Mitsubishi UFJ Financial Group jumping 8.3 percent and Sumitomo Mitsui Financial Group Inc. rising 8.1 percent.

Several Asian markets, including Hong Kong and South Korea, remained shut for the Lunar New Year holiday. Markets in mainland China, Singapore, Malaysia and Taiwan were also closed.

On Wall Street Monday, the Dow Jones industrials zigzagged to a higher close, ending up 0.5 percent at 8,116.03. Stocks rose in response to Pfizer Inc.'s $68 billion planned acquisition of Wyeth, a deal that reassured investors that mergers could still take place in a recession.

Dow futures were up 73 points to 8,110, while S&P 500 futures were up 7.7 points at 838.50.

Investors will be looking to U.S. consumer confidence data for January later Tuesday. It is expected to remain close to December's record lows, with only President Obama's inauguration expected to give a mild bounce.

Elsewhere, markets in Singapore and South Korea will reopen Wednesday, and Hong Kong's exchanges will reopen Thursday. Trading in mainland China and Taiwan will be closed all week and resume Feb. 2.

Oil prices, meanwhile, rose above $46 a barrel as traders weighed waning demand and OPEC's compliance with production cuts. Light, sweet crude for March delivery was up $0.99 at $46.72 a barrel in electronic trading on the New York Mercantile Exchange.

In currencies, the euro rose to $1.3242 from $1.3201 late Monday, while the dollar edged down to 89.14 yen from 89.25.

[Associated Press; By CARLO PIOVANO]

AP Business Writers Malcolm Foster in Bangkok and Tomoko A. Hosaka in Tokyo contributed to this report.

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