Bank stocks drag Europe down despite Asian gains

[January 29, 2009]  LONDON (AP) -- Bank stocks dragged European markets down Thursday, with investors booking profits on big gains earlier this week. The passage of a $819 billion economic stimulus package by the U.S. House of Representatives overnight failed to cheer European markets.

By noon in Europe, Britain's FTSE 100 plunged 2.1 percent to 4,206.20, Germany's DAX dived 1.2 percent to 4,464.26, and France's CAC 40 slumped 1.3 percent to 3,034.77.

Banks took most of the points off the indexes after a strong rally Wednesday.

Investors were also disheartened by more bad news about the German economy, Shell's first quarterly loss in 10 years and Xstrata looking to raise $5.9 billion through a share sale.

Germany's unemployment rate jumped by nearly a percentage point to 8.3 percent in January, according to official figures -- a trend experts expect to continue as the deepening global economic crisis continues to hurt Europe's largest economy.

Royal Dutch Shell PLC, Europe's largest oil company, said it swung to a net loss of $2.81 billion in the fourth quarter, hurt by the sharp fall in oil prices and writedowns on inventory.

Mining company Xstrata PLC proposed a $5.9 billion rights issue as preliminary results for 2008 indicated profits dropped by more than a third.

"There's not much good news," said Stephen Pope, chief global markets strategist for Cantor Fitzgerald. "Shell had its first quarterly loss in 10 years. Swatch Group sales missed estimates.

"Many of the sectors that were leading the markets higher yesterday, i.e. the banks and financial services, are on their way back. This isn't necessarily a bad bank bounce -- the first half of this year is going to be characterized by short-term trading strategy."

In London, shares in Lloyds Banking Group, which leapt by 50 percent Wednesday, fell 11 percent, Barclays tumbled 7.1 percent and HSBC dropped 4.2 percent. In Paris, BNP Paribas flopped 4.4 percent.

In Europe, investor sentiment refused to be lifted by the Wednesday night passage of President Barack Obama's $819 billion economic recovery plan in the Democrat-controlled U.S. House of Representatives, where Republicans refused to back it. It will now pass to the Senate, where debate could begin as early as Monday.

"Given that it went down party lines yesterday, we have to wonder if the Senate will go the same way, and whether it will not go through on its first reading," said Pope.

Asian markets were higher, as many exchanges which had been closed for holidays earlier this week played catch-up with gains in the rest of the world. They also got a boost from Obama's stimulus package.

Hong Kong jumped 4.6 percent in a catch-up rally. Japan's Nikkei 225 stock average rose 144.95 points, or 1.8 percent, to 8,251.24, even as new data showed that retail sales in the world's second-largest economy sank the most in nearly four years in December.

Hong Kong's Hang Seng leaped 575.83 points, or 4.6 percent, to 13,154.43 after being closed for three days for the Lunar New Year. Mainland China's markets are closed all week. South Korea's Kospi gained 0.7 percent and Australia's main index rose 0.9 percent.

"The U.S. stimulus package has a positive psychological impact on markets globally," said Castor Pang, an analyst at Sun Hung Kai Financial in Hong Kong.

"But there is still going to be bad news in the form of profit warnings and unemployment," he said. "The unemployment rate is going to continue to climb, making U.S. consumers even more hesitant about spending."

Financial stocks led Asia's advance, buoyed in part by hopes of new U.S. efforts to trim bad debt and spur lending.

In Hong Kong, banking giant HSBC jumped 8.4 percent and China's top lender, Industrial & Commercial Bank of China Ltd., or ICBC, added 5 percent. In Tokyo, megabank Sumitomo Mitsui Financial Group soared 13 percent, Mitsubishi UFJ jumped 4.8 percent and Mizuho added 5.2 percent.

Japanese exporters such as Sony and Toshiba reported weak quarterly results after the market closed.

Sony Corp.'s net profit tumbled 95 percent in the October-December quarter, as the global slump hurt sales of its core electronics products, while Toshiba Corp. sank into the red in the third quarter and expects a loss for the full year.

Elsewhere, New Zealand's benchmark index was up 0.8 percent after the central bank slashed its key interest rate by 1.5 percentage points to 3.5 percent to prevent the country's recession from deepening.

Oil prices slipped toward $41 a barrel as rising U.S. crude inventories offset expectations the U.S. stimulus package will revive growth and consumer demand. Light, sweet crude for March delivery was down $1.13 to $41.03 a barrel by noon in Europe in electronic trading on the New York Mercantile Exchange.

[Associated Press; By LOUISE WATT]

AP Business Writer Stephen Wright contributed to this report from Bangkok, Thailand.

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