European stocks fall after grim industrial data

[June 12, 2009]  LONDON (AP) -- European stock markets fell modestly Friday ahead of an expected retreat on Wall Street and after further dismal industrial production data fueled renewed concerns about the length and depth of the recession.

Germany's DAX fell 23.89 points, or 0.5 percent, to 5,083.37 and the CAC-40 in France was 2.65 points, or 0.1 percent, lower at 3,332.29.

The European Union's statistics office Eurostat revealed that industrial production in the 16 countries that use the euro slumped by 1.9 percent in April from the previous month. That was way more than the 1 percent decline expected in the markets and stoked worries that the recession in the euro zone may not yet have bottomed out, as some had hoped.

"April's euro-zone industrial production figures provide few signs that the negative effects from destocking and the collapse in global trade are waning," said Ben May, European economist at Capital Economics.

Industrial production plays a particularly important role in the European economy and its recovery, whenever it comes, will provide a clear indication that the worst of the recession is over.

Sharply lower industrial output was blamed for the massive 2.5 percent quarterly fall in the euro zone's first quarter gross domestic product. The recession in Germany, the euro zone's biggest economy, was even greater as demand for its high-value exports, such as cars and heavy machinery, slumped amid the collapse in global trade.

Meanwhile, the FTSE 100 index of leading British shares was down 12.57 points, or 0.3 percent, at 4,449.30 with Barclays PLC down around 3 percent after it confirmed the sale of its global investment unit to U.S. fund manager BlackRock Inc. for $13.5 billion.

"This news comes as no surprise to the markets and the weakness today for the Barclays share price seems a case of 'buy the rumour, sell the news' -- the shares had rallied by almost 20 pence over the past week or so," said David Jones, chief market strategist at IG Index.

The relatively subdued end to the week echoes developments in the markets over the last fortnight. Following three months of gains, the markets have recently traded in narrow ranges.

Stock markets have rallied since mid-March as investors priced in the possibility of a swifter than anticipated global economic rebound. As equities usually start rising 6 to 9 months before actual recovery emerges in the official economic data, this suggests investors believe the massive sell-off in markets during the most acute phase of the financial crisis was overdone. Some of the world's major equity indexes are now in positive territory for 2009.

Nevertheless, many investors are beginning to worry that higher oil prices and bond yields could limit the extent of an economic recovery, especially if they hit U.S. consumption. Without the support of the U.S. consumer, which accounts for around 70 percent of the U.S. economy and 20 percent of the global economy, any recovery will soon fizzle out.

Wall Street was expected to open little changed after modest gains Thursday amid a dearth of economic news. Dow futures were down 8 points, or 0.1 percent, at 8,691 while the broader Standard & Poor's 500 futures fell 1.2 point, or 0.1 percent, to 937.

Earlier, Asian markets rose after some more encouraging Chinese economic data.

The government said retail sales and industrial output grew strongly in May amid heavy stimulus spending. That followed figures showing domestic investment in factories, real estate and other fixed assets soared 32.9 percent in the first five months of the year, even as exports and imports tumbled in May.

Beijing is trying to shield the Chinese economy from the plunge in demand from Western consumers by injecting money into the economy through heavy spending on construction projects -- and so far that seems to be working.

Japan's Nikkei average closed up 154.49 points, or 1.6 percent, to 10,135.82, the highest since Oct. 7. For the week, it climbed 3.8 percent. Hong Kong's Hang Seng index added 98.65 points, or 0.5 percent, to 18,889.68. Australia's key index gained 0.4 percent to 4,062.2, while South Korea's Kospi climbed 0.7 percent to 1,428.59.

Mainland China's Shanghai's Composite index -- which has surged more than 40 percent this year -- fell 1.9 percent to 2,743.76.

Oil prices fell back after hitting an eight-month high Thursday. Benchmark crude for July delivery slipped $1.22 to $71.46 a barrel in electronic trading on the New York Mercantile Exchange. A day earlier, it climbed to $72.68.

In currencies, the dollar rose to 98.07 yen from 97.51 yen late Thursday, while the euro fell to $1.4057 from $1.4125.

[Associated Press; By PAN PYLAS]

AP Business Writer Malcolm Foster in Bangkok contributed to this report.

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