European markets take breather after big gains

[June 02, 2009]  LONDON (AP) -- European stock markets edged down Tuesday as investors booked profits from the previous session, when optimism reigned following stronger than expected manufacturing news from around the globe.

Germany's leading DAX index was down 10.27 points, or 0.2 percent, at 4,450.85 while France's CAC-40 fell 20.39 points, or 0.6 percent, to 3,359.10. The FTSE 100 index of leading British shares was down 55.34 points, or 1.2 percent, at 4,450.85.

"The first day of June was marked by bumper gains for equities on both sides of the Atlantic....as always however, a rally like this does leave the market prone to profit taking," said Matt Buckland, a dealer at CMC Markets.

On Monday, stocks around the world surged after monthly manufacturing surveys stoked hopes that the world economy could be poised for a return to growth in the second half of the year. In New York, the Dow Jones industrial average closed up 2.6 percent at 8,721.44, while the broader Standard & Poor's 500 index also rose 2.6 percent, to 942.87 -- their highest closes since early January.

As in Europe, Wall Street was poised to give up some of Monday's gains, with Dow futures 19 points, or 0.2 percent, lower, at 8,669 and the S&P 500 futures 1.9 points, or 0.2 percent, down at 937.20.

The FTSE's losses were bigger than those recorded in Germany and France largely because banking stocks fell sharply after a major Middle Eastern shareholder in Barclays PLC said it intends to sell part of its stake, potentially taking a big profit on its seven-month investment.

Barclays shares fell more than 13 percent to 274 pence. Others fell in Barclays' slipstream, including Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC, which are both majority-owned by the British government. Unlike Lloyds and Royal Bank, Barclays did not want to raise capital from the government and opted for Middle Eastern investors instead.

Economic news could well be the main driver this week, culminating in Friday's closely-watched U.S. non-farm payrolls report for May where investors will be looking to see if the recent better than expected U.S. economic data is being translated into more modest job losses.

The European Central Bank and the Bank of England also announce their latest interest rate decisions on Thursday. Though they are expected to keep their benchmark rates at 1 percent and 0.5 percent respectively, investors will be interested to see what the two banks say about the economic outlook.

Despite a recent lull, stocks around the world have rallied strongly over the last few weeks, with some major indexes moving into positive territory for the year. The trigger for the gains has been better than expected economic news, particularly in the U.S., which has fueled an increase in appetite for risk on hopes that the global recession is receding. Stock markets usually start recovering between 6-9 months before an actual economic recovery emerges.

Neil Mackinnon, chief economist at ECU Group, said the market mood has been to ignore bad economic data and look for "green shoots" and good news in the economic numbers.

"Once the summer is over, economic data-expectations have to be strong enough to justify stockmarket levels otherwise stockmarket investors will have to rethink and/or face a sharp correction in markets," he said. Liquidity brought on by government measures has only accelerated money into stocks -- hot money some market watchers say could continue flowing for some time.

Earlier in Asia, Japan's benchmark Nikkei 225 stock average added 26.56 points, or 0.3 percent, to 9,704.31, setting a fresh eight-month high. Australia's index added 1.6 percent and Shanghai's benchmark was up 0.1 percent.

But Hong Kong's Hang Seng lost 2.7 percent to 18,389.08 after jumping 4 percent the previous session. South Korea's Kospi gave up early gains to trade down 0.2 percent amid more concerns North Korea is preparing to launch three or four medium-range missiles.

Oil prices were down slightly in electronic trading on the New York Mercantile Exchange with the benchmark contract off 72 cents at $67.86 a barrel -- just shy of the seven month highs recorded on Monday.

In currencies, the dollar fell to 96.21 yen from 96.39 yen, while the euro slipped to $1.4122 from $1.4167.

[Associated Press; By PAN PYLAS]

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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