European stocks slip as investors take breather

[July 22, 2009]  LONDON (AP) -- Stock markets slipped in Europe on Wednesday and rose only modestly in Asia, as investors stepped back from a week-long rally fueled by upbeat earnings to assess the outlook for corporate profits amid a still-weak global economy.

By midday in Europe, Germany's DAX was down 29.96 points, or 0.6 percent, at 5,064.01, while Britain's FTSE 100 slide 21.65 points, or 0.5 percent, to 4,459.52. France's CAC 40 was down 28.81 points, or 0.9 percent, at 3,274.08.

The indexes had rallied for the past week on strong U.S. corporate earnings reports, with the latest from Caterpillar Inc., Apple Inc. and Coca Cola Inc. suggesting that the worst of the economic crisis is past.

That view was echoed by Federal Reserve Chairman Ben Bernanke, who said Tuesday that the world's largest economy was seeing some improvement.

However, while the news has bolstered risk appetite -- with many Asian indexes eking out gains at the close Wednesday -- investors seemed to believe that the good news has been mostly priced into the share values.

"We keep the view that the multi-quarter outlook for developed economies does not look as bright as the current equity rally would suggest," said Sebastien Barbe, analyst at Calyon.

In fact, Bernanke accompanied his forecast for an economic recovery with the warning that it would be slow due to rising unemployment. The Fed chairman will be watched for more comments in his testimony to the U.S. Senate Banking Committee today.

More and more investors are tiptoeing as they try to determine the actual shape of the rebound, said Thomas Lam, senior treasury economist at the United Overseas Bank in Singapore.

"The U.S. economy either has stabilized or is stabilizing, there's no doubt about that," Lam said. "We have transitioned from thinking it's the end of the world to trying to see what the new world will look like."

In the U.K., the Bank of England said was still considering whether to pump another 25 billion pounds into the financial system. In the minutes to its latest policy meeting, the bank's rate-setters suggested they would wait until August to assess the need to create more money.

Like Bernanke, the Bank of England said that while the economy has stabilized somewhat, a quick recovery was unlikely as balance sheet constraints within the banks would continue to limit demand growth.

In Asia, markets closed mostly higher, although gains were limited.

Japan's Nikkei 225 stock average rose 71.14, or 0.7 percent, to 9,723.16. South Korea's Kospi was up 0.3 percent. Shanghai's index gained 1.9 percent, Australia's benchmark advanced 0.4 percent and Taiwan's market edged up 0.5 percent.

Hong Kong's Hang Seng added 253.56, or 1.3 percent, to 19,248.47. India's Sensex shed 1.3 percent.

Wall Street added to its gains overnight, but like Europe was expected to slide Wednesday.

Dow futures were off 71 points, or 0.8 percent, at 8,815 and Standard & Poor's 500 futures declined 5.9, or 0.6 percent, at 947.50.

On Tuesday, the Dow rose 67.79, or 0.8 percent, to 8,915.94, its highest level since January.

The S&P 500 rose 3.45, or 0.4 percent, to 954.58, its highest close since November. And the Nasdaq rose 6.91, or 0.4 percent, to 1,916.20, its 10th straight gain. The last time the index rose 10 straight days was in July 1997.

Oil prices fell in European trade, with the September contract down $1.10 to $64.51 a barrel. On Tuesday, the August contract expired, rising 74 cents to settle at $64.72.

The dollar fell to 93.45 yen from 93.64 yen. The euro fell to $1.4185 from $1.4217.

[Associated Press; By CARLO PIOVANO]

Associated Press writer Jeremiah Marquez contributed to this report from Hong Kong.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.