European markets down ahead of key US retail news

[May 13, 2009]  LONDON (AP) -- European stock markets reversed earlier gains Wednesday as Wall Street futures pointed to a lower opening amid uncertainty about upcoming U.S. retail sales figures.

The FTSE 100 index of leading British shares was down 24.76 points, or 0.6 percent, at 4,400.78 and Germany's DAX fell 31.20 points, or 0.6 percent, at 4,822.91. The CAC-40 in France was 15.30 points, or 0.5 percent, lower at 3,215.80.

Europe's main markets had opened higher in the wake of solid gains earlier in Asia and a late rally on Wall Street on Tuesday, which helped the Dow Jones industrial average end 50 points higher at 8,469.11.

Those gains on Wall Street may vanish after Wednesday's open. Dow futures were down 38 points, or 0.5 percent, at 8,398, while the broader Standard & Poor's 500 futures fell 4.5 points, or 0.5 percent, at 902.30.

Investors will be keeping a close eye on the U.S. this week to see if the recent run of better than expected news continues when a raft of retailers report quarterly earnings. First-quarter earnings figures are expected from, among others, Wal-Mart Stores Inc. and Macy's Inc. while the Commerce Department reports retail sales for April later Wednesday.

"Any indication that U.S. consumers are getting their wallets out will be well received by traders, and further reinforcement by business inventory figures would increase positive sentiment and potentially buoy markets," said Philip Gillet, a sales trader at IG Index.

The markets anticipate retail sales to drop a modest 0.1 percent in April from the previous month, compared with the big 1.2 percent decline reported in March. Excluding auto sales, retail sales are expected to be flat.

Investors are looking to see if the retail sales news will help provide some direction after relatively flat trading through the early part of the week.

The main talking point in the markets though is whether the two-month rally seen in stocks around the world represents a bear market rally or whether it is something more.

Advocates of the bear market hypothesis point to historical precedents, such as false dawns in the stock markets during the Great Depression of the 1930s. While acknowledging some improved economic signals around the world, they think the optimism has been overdone -- especially as banks could still encounter more problems.

Those arguing that the recent hefty stock market gains represent a turning point in the global economic crisis reckon that the forward-looking indicators have pointed to a resumption of growth possibly by the end of this year -- stock markets usually start rallying between 6-9 months before an actual economic recovery emerges.

"We have greater sympathy with the bear market line of attack, but while we are dubious about the ability of this bull market in equities to continue we also do not believe that we are likely to see a rerun of that 1930s dramatic leg lower." said Daragh Maher, an analyst at Calyon Credit Agricole.

"Our hesitancy simply reflects the fact that the optimism has swung so far so quickly," he added.

Stocks around the world have rallied strongly over the last few weeks -- with some major indexes now in positive territory for the year -- prompting some investors to claim the markets are over the worst. Many markets ended last week more than 5 percent higher.

The trigger for the gains has been better than expected economic news, particularly in the U.S., the world's largest economy. Mounting hopes that the global economy may recover before the year's end has fueled an increased appetite for risk. Stock markets usually start recovering between 6-9 months before an actual economic recovery emerges.

Markets have also been buoyed by indications that the banks are now in much better health to deal with any potential losses associated with the recession after raising significant amounts of cash.

Earlier, in Asia, Japan's Nikkei 225 stock average rose 41.88 points, or 0.5 percent, to 9,340.49, while Hong Kong's Hang Seng dipped 94.02, or 0.6 percent, to 17059.62.

Earlier in Asia, South Korea's Kospi traded up 0.8 percent, while Shanghai's benchmark gained 1.8 percent to 2,663.77.

Taiwan shares gained 0.8 percent. Australian and Indian indexes fell.

The other main talking point in financial markets is whether the price of oil will continue to push higher after going through the $60 a barrel Tuesday for the first time this year.

By mid-afternoon London time, benchmark crude for June delivery was up 33 cents to $59.18 on the New York Mercantile Exchange.

In currencies, the dollar climbed to 96.19 yen from 96.14 yen. The euro fell to $1.3656 from $1.3680 after disappointing euro zone industrial production data stoked fears that the 16 nation single currency zone contracted by far more than anticipated in the first quarter of the year.

[Associated Press; By PAN PYLAS]

AP Business Writer Jeremiah Marquez contributed to this report

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