Britain's FTSE leads European stocks down

[June 03, 2009]  LONDON (AP) -- European stock markets fell Wednesday as investors booked profits accumulated earlier in the week with Britain's FTSE 100 index leading the way down amid mounting uncertainty about the future of the Labour government and Prime Minister Gordon Brown in particular.

Germany's DAX was 33.06 points, or 0.6 percent, lower at 5,111, while France's CAC-40 fell 34.78, or 1 percent, to 3,343.26.

The losses on Britain's FTSE 100 index of leading British shares were double those recorded in Germany and France, as investors tried to get to grips with the apparent chaos in the Labour government.

Hazel Blears, the communities secretary, resigned from the Cabinet, piling the pressure on Brown ahead of what are expected to be dismal European and local election results for his Labour party on Thursday.

"There is no doubt that the UK political situation is a cause for concern and investors will be looking at results of tomorrow's elections and the implications for the Labour government," said Neil Mackinnon, chief economist at ECU Group.

"Resignations and the possibility of the prime minister being ousted has created uncertainty and investors could be looking to take some profits going into the elections," said Mackinnon.

The losses on the FTSE came despite some encouraging economic news. A closely-watched survey found that Britain's services sector, which accounts for around two-thirds of the total economy, grew again in May, reinforcing hopes that the recession may soon be over.

Britain aside, analysts reckon that economic news could well be the main driver this week. The raft of news culminates 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.

Insight into the U.S. labor market will emerge later when the ADP payroll services firm publishes its own estimate for the scale of job losses during May.

"Optimists will want the ADP employment figure to back up forecasts of a more modest decline in Friday's non-farm payrolls," said Daragh Maher, an analyst at Calyon Credit Agricole.

Ahead of the open, Wall Street futures were pointing slightly lower. Dow futures were down 36 points, or 0.4 percent, at 8,678 while the broader Standard & Poor's 500 futures were 5.4 points, or 0.6 percent, lower at 937.20. On Tuesday, the Dow rose 0.2 percent, to 8,740.87 and the S&P 500 index rose 0.2 percent, to 944.74.

Investors are also positioning themselves for Thursday's interest rate decisions from the European Central Bank and the Bank of England. 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 after some recent encouraging data.

Earlier, Japan's Nikkei 225 stock average rose for a sixth straight session, climbing 37.36 points, or 0.4 percent, at 9,741.67. Hong Kong's Hang Seng gained 187.39, or 1 percent, to 18,576.47 on optimism that China will rebound from its economic slowdown.

China's Shanghai Composite index rose to a 10-month high, advancing 2 percent to 2,778.59. Australia's index gained 1.6 percent, and Thailand's SET index rose 1.1 percent.

Markets in Taiwan, the Philippines and India fell.

Crude oil prices hovered above $68 a barrel and near seven-month highs earlier as investors sought a safe haven in commodities from a weaker U.S. dollar and inflation. Benchmark crude for July delivery was down 68 cents to $67.87 a barrel in electronic trading on the New York Mercantile Exchange.

The dollar was trading at 95.93 yen from 95.45 yen while the euro fell to $1.4215 from $1.4293 late Tuesday in New York.

[Associated Press; By PAN PYLAS]

AP Business Writer Stephen Wright in Bangkok contributed to this report.

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