European stocks lower as investors assess outlook

[June 08, 2009]  LONDON (AP) -- European stock markets fell Monday following a mixed performance in Asia as investors took advantage of a quiet start to the week to book profits and assess whether the sharp rally in equities over the last three months can continue through the summer months.

In Europe, the FTSE 100 index of leading British shares was down 52.48 points, or 1.2 percent, at 4,386.06 while Germany's DAX fell 84.21 points, or 1.7 percent, to 4,992.82. The CAC-40 in France was 47.07 points, or 1.4 percent, lower at 3,291.98.

"With fewer fundamentals set for release in the coming days, traders really have a chance to try and determine whether the recent gains can be built upon," said Matt Buckland, a dealer at CMC Markets.

Stock markets have rallied hard over the last three months largely on better than expected economic data, particularly out of the U.S. As stocks usually start rising 6 to 9 months before actual recovery emerges in the official economic data, investors have bet that the massive sell-off in markets during the most acute phase of the financial crisis was overdone.

Despite the improvement in the economic data flow, concerns linger about the global economy. With interest rates on government bonds edging higher, unemployment continuing to rise and oil prices back near six month highs, investors are concerned about the sustainability of a potential recovery.

And though the financial system may have been saved from collapse, investors still want more evidence that banks are once again lending to businesses and households. So far, there's very little to show that the banks are doing anything other than improving their balance sheets.

"There is little doubt that the U.S. economy is on the move again, but we need to see some real improvement from the banking sector, in terms of its ability to lend in really challenging circumstances," said David Buik, markets analyst at BGC Partners.

As a result, there are worries in the market that if economic data around the world starts to disappoint expectations, then investors may have to start revising down their recent optimistic tendencies, which have helped fueled the strong stock market rally. Some of the world's major equity indexes are now in positive territory for 2009.

The lack of momentum is set to continue when U.S. markets open later in the day. Dow futures were down 78 points, or 0.9 percent, at 8,684 while the broader Standard & Poor's 500 futures were down 8.8 points, or 0.9 percent, at 931.70.

Earlier in Asia, Japan's benchmark Nikkei 225 stock average rose 97.62 points, or 1 percent, to an eight-month high of 9,865.63 as exporters advanced, helped by the dollar's gains against the yen last week. Toyota, the world's largest automaker, rose 2 percent and Canon added 3.4 percent.

Elsewhere, Hong Kong's Hang Seng lost 426.14, or 2.3 percent, to 18,253.39 and South Korea's Kospi was off 0.1 percent at 1,393.30. China's Shanghai market gained 0.5 percent. Australian markets were closed for a holiday.

Oil prices fell back, with benchmark crude for July delivery down $1.38 at $67.06. The contract lost 37 cents on Friday.

In currencies, the dollar fell to 98.29 yen from 98.61 yen late Friday. The euro dropped to $1.3870 from $1.3975.

[Associated Press; By PAN PYLAS]

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

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