World stocks pause for breath, seeking direction

[June 09, 2009]  LONDON (AP) -- European stock markets were little changed Tuesday following modest losses in Asia as investors awaited signals about whether the rally of the last three months will continue through the summer.

The FTSE 100 index of leading British shares was up 2.08 points, or 0.1 percent, at 4,407.30 while France's CAC-40 was 13.27 points, or 0.4 percent, at 3,302.93. Germany's DAX fell 4.89 points, or 0.1 percent, to 4,999.83.

As has been the case lately, much will depend on the performance on Wall Street, which is expected to open down later after a largely flat performance in the previous session. Dow futures were down 12 points, or 0.1 percent, at 8,747 while the broader Standard & Poor's 500 futures fell 1.1 point, or 0.1 percent, to 937.70.

"Wall Street stumbled ahead of the close after a strong rally and with limited directional data around, how the U.S. performs later today could be instrumental in determining where the European markets close too," said Matt Buckland, a dealer at CMC Markets.

Stock markets have rallied strongly 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, 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.

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. Some of the world's major equity indexes are now in positive territory for 2009.

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 lenders are doing anything other than improving their balance sheets.

Investors will also be watching announcements in the U.S. about which of the country's biggest banks will be able to repay billions in federal bailout dollars. The government may issue that list as early as Tuesday.

"It appears that there may be as many as ten banks fit enough by stress test criteria that may shortly repay their loans," said David Buik, markets analyst at BGC Partners.

Earlier, most Asian markets closed modestly lower with Japan's Nikkei 225 stock average losing 78.81 points, or 0.8 percent, to 9,786.82. Hong Kong's Hang Seng fell 1.1 percent to 18,058.49, and South Korea's Kospi was off 1.5 percent at 1,371.84.

Taiwan's market, which has surged nearly 50 percent from lows in March, slid 3.2 percent in the region's worst performance of the day. Australia's benchmark was also lower while Singapore recovered losses to be slightly higher.

In mainland China, Shanghai's index rebounded from the red to close higher by 0.7 percent, helped by optimism that news due this week about the country's economy will show signs of improvement.

Oil prices rose, with benchmark crude for July delivery up 81 cents to $68.90 a barrel.

In currencies, the dollar edged down to 98.18 yen from 98.39 yen. The euro fell to $1.3904 from $1.3927.

[Associated Press; By PAN PYLAS]

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

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