European markets down as Fed enthusiasm wanes

[June 25, 2009]  LONDON (AP) -- European stock markets fell modestly Thursday as early enthusiasm over the U.S. Federal Reserve's latest policy statement dissipated amid concerns that borrowing costs may rise sooner than many investors were predicting.

In Europe, the FTSE 100 index of leading British shares was down 17.58 points, or 0.4 percent, at 4,262.40 while Germany's DAX fell 48.38 points, or 1 percent, to 4,787.63. The CAC-40 in France was 25.99 points, or 0.8 percent, lower at 3,158.77.

Earlier, Asian shares had advanced in the wake of the Fed's statement that it would keep interest rates low for a period of time. However, as European markets opened investors' focus switched to the Fed's failure to announce any further measures to boost the money supply.

Instead, the Fed said it is "monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted." Analysts thought the Fed sounded increasingly worried about the scale of its liabilities incurred by its massive stimulus policies.

"Disappointment over the absence of an extension of the asset buying plan pushed down stocks and supported the dollar in a reversal of the trends initiated in Asian hours," said Jane Foley, research director at Forex.com.

In the immediate aftermath of the Fed statement, the euro spiked up nearly a cent to $1.4011 but has dropped back down to $1.3950. Meanwhile, the dollar has risen about a yen to around 96.40 yen.

Daragh Maher, an analyst at Calyon Credit Agricole, said the Fed's "less downbeat stance might have prompted some dollar selling as markets chased risk, but the failure of the Fed to expand or alter its asset purchase program provided some offsetting relief to dollar bulls who had fretted about additional measures."

U.S. investors were poised to react in a subdued manner when Wall Street opens later in the day. Dow futures were up only 14 points, or 0.2 percent, at 8,270 while the broader Standard & Poor's 500 futures rose 1.5 points, or 0.2 percent, to 899.50.

Investors across all assets have been in a jittery mood of late amid gnawing concerns that the market rally over the last three months has not been justified by economic indicators.

Equities rose from the middle of March until June on hopes that the U.S. economy in particular will recover from recession sooner than anticipated. As a result, many investors saw valuations around the world as particularly cheap and started buying into the market.

However, a run of underwhelming economic news, culminating in Monday's warning from the World Bank that the global economic downturn in 2009 will be bigger than it previously thought, brought an abrupt end to the rally and altered the general mood prevailing in the markets.

Earlier in Asia, Japan's Nikkei 225 stock average rose 205.76 points, or 2.2 percent, to 9,796.08. Japanese stocks were boosted by the weakening yen, which has the potential of making Japanese exports cheaper.

Hong Kong's Hang Seng jumped 382.88, or 2.1 percent, to 18,275.03 and South Korea's Kospi gained 2.1 percent to 1,392.73 amid reports the government was forecasting a milder recession this year.

Elsewhere, Australia's benchmark gained 1.3 percent, China's Shanghai index inched up 0.1 percent and Singapore's market rose 1 percent.

Technology shares gained in Asia after U.S. software giant Oracle Corp. reported better-than-expected earnings for its fiscal fourth quarter. Toshiba advanced 2.6 percent in Tokyo and Samsung Electronics rose 1.4 percent in Seoul.

Oil prices rose modestly to just above $69 a barrel in Asia amid mixed signals about crude demand from a weekly U.S. inventory report. Benchmark crude for August delivery was up 40 cents to $69.07 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

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

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