European stocks claw back ground after big losses

[March 19, 2010]  LONDON (AP) -- European stocks clawed back some ground Tuesday, with Wall Street also expected higher, after a heavy sell-off on Monday, when the World Bank warned that the global economic downturn would be deeper than previously predicted.

In Europe, the FTSE 100 index of leading British shares was up 17.41 points, or 0.4 percent, at 4,251.46 while Germany's DAX rose 35.19 points, or 0.8 percent, to 4,728.49. The CAC-40 in France was 6.87 points, or 0.2 percent, higher at 3,130.12.

On Monday, Europe's main markets slumped by more than 2 percent after the World Bank said it expected the global economy to shrink by 2.9 percent this year, far more than its previous forecast for a 1.7 percent contraction.

A notable gainer in Europe was news and information company Thomson Reuters PLC, which saw its share price rally more than 5 percent after it announced plans to cancel its listing on the London Stock Exchange but remain in Toronto and New York.

U.S. markets were also expected to stabilize, after the Dow Jones industrial average and the broader Standard & Poor's slumped 2.4 percent and 3.1 percent respectively on Monday. Dow futures were up 35 points, or 0.4 percent, at 8,318 while S&P 500 futures rose 4.8 points, or 0.5 percent, to 893.40.

David Buik, markets analyst at BGC Partners, said the early week selling was perfectly "sensible." The stock rally since March was clearly "overcooked" and came too soon after a 40 percent slide in prices during the peak of the financial crisis, he said.

Equities and oil prices rallied hard since March on hopes that the U.S. economy will recover from recession sooner than anticipated. That optimism has largely dissipated and analysts say investors need clearer evidence that the world economy and company earnings are improving to make sense of stock valuations. In March, many investors saw valuations around the world as particularly cheap and started buying into the market.

In light of the current unease, investors will be closely looking at Wednesday's statement from the U.S. Federal Reserve. Though the Fed is widely expected to keep its benchmark interest rate in the range of zero to 0.25 percent, investors will be focusing on what it says about current economic prospects and how long it expects to keep monetary policy as accommodating as it is.

Most analysts think the Fed has a difficult balancing act -- expressing the view that the worst of the recession is over at the same time as not spooking investors into thinking that interest rates will rise any time soon.

"The market will be looking for reassurance," said Buik.

Earlier, Asian stock markets fell in the wake of the big U.S. and European losses on Monday.

Japan's Nikkei 225 stock average lost 276.66, or 2.8 percent, to 9,549.61 while Hong Kong's Hang Seng shed 521.19, or 2.9 percent, to 17,538.36.

South Korea's Kospi lost 2.8 percent, Australia's index was off 3.1 percent and Taiwan's benchmark dropped 2.3 percent. Shanghai's main stock measure traded lower by 0.1 percent.

As expectations of higher economic growth wilted, so did shares of resource companies, which have bloomed in recent weeks. BHP Billiton Ltd., the world's largest mining company, slid 4.1 percent in Australia, and heavyweight oil company PetroChina shed 4.5 percent in Hong Kong.

Oil prices fell on expectations demand will remain weak. Benchmark crude for August delivery was down 52 cents at $66.98 a barrel on electronic trading on the New York Mercantile Exchange.

In currencies, the dollar weakened 0.2 percent 95.29 while the euro was 0.6 percent higher at $1.3923.

[Associated Press; By PAN PYLAS]

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

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