European markets steady despite big Asian falls

[June 16, 2009]  LONDON (AP) -- European stock markets steadied Tuesday following big losses around the world over the last 24 hours as investors have grown increasingly cautious about the likelihood that the recent rally in equities will continue through the summer.

In Europe, the FTSE 100 index of leading British shares rose 16.17 points, or 0.4 percent, to 4,342.18 while France's CAC-40 index was up 7.78 points, or 0.2 percent. Germany's DAX was 4.67 points, or 0.1 percent, lower at 4,885.27.

Europe's relatively calm start came after Asia tumbled in the wake of Wall Street's worst day in a month, with the Dow falling over 2 percent. Japan's Nikkei 225 stock average shed 286.79 points, or 2.9 percent, to 9,752.88 even as the central bank said the country's economic conditions "have begun to stop worsening", while Hong Kong's Hang Seng slid 333.46, or 1.8 percent, to 18,165.50.

"Yesterday's thumping sell-off in both Europe and the U.S. has been followed by declines in Asia as investors seemingly grow ever more skeptical as to the validity of claims that the green shoots of recovery are anything more than prime fodder for bears to maul," said Matt Buckland, a dealer at CMC Markets.

That skepticism was stoked Monday by some weak U.S. manufacturing figures, which diminished expectations about the speed of any recovery in the world's largest economy.

The stock market rally since March's lows has been fueled by hopes that the U.S. economy in particular will recover from recession sooner than previously anticipated. As equities usually start rising 6 to 9 months before actual recovery emerges in the official data, this suggests investors believed 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.

That optimism has dissipated in recent days, however. Rising interest rates on U.S. government bonds and higher oil prices have combined to worry investors that any recovery around the world could be choked off at birth.

"Consumers have to save more and repay debt and as a result, I think the economic bulls will have to review their case," said Neil Mackinnon, chief economist at ECU Group.

"In my mind, it certainly will take the steam out of the recent increase in bond yields and some commodity prices too," he added.

That caution is set to persist later when Wall Street opens. Dow futures were 3 points lower at 8,561 while the broader Standard & Poor's 500 futures rose 0.4 point to 919.80. On Monday, the Dow Jones industrial average tumbled 2.1 percent, to 8,612.13, putting it back into negative territory for the year. The S&P 500 index dropped 2.4 percent to 923.72.

Elsewhere, oil prices rose modestly as the dollar weakened after Russian President Dmitry Medvedev told a regional summit that the world needs new reserve currencies. In recent months, the fall in the dollar has gone hand in hand with rises in commodity prices, and that in turn has helped fuel a sharp rally in mining and energy stocks.

Benchmark crude for July delivery rose 81 cents to $71.43 in electronic trading on the New York Mercantile Exchange, while the euro rose 0.8 percent to $1.3890 and the dollar fell 0.8 percent to 96.83 yen.

[Associated Press; By PAN PYLAS]

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

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