European markets pare gains as US set to open flat

[May 20, 2009]  LONDON (AP) -- European stock markets saw earlier gains fade Wednesday as futures markets were predicting a flat opening on Wall Street and investors awaited the latest Congressional testimony from U.S. Treasury Secretary Tim Geithner.

The FTSE 100 index of leading British shares was down 20.44 points, or 0.5 percent, at 4,461.81, while Germany's DAX was up 26.50 points, or 0.5 percent, at 4,986.12. The CAC-40 in France rose 2.59 points, or 0.1 percent, at 3,277.55.

The gains in Europe were modest compared with Tuesday's session when banking stocks rode on the coattails of their counterparts in the U.S. to help the markets post big gains -- the DAX for example ended more than 2 percent higher.

American banks are seemingly finding it fairly easy to raise the capital required of them by the regulatory authorities. Bank of America Corp. confirmed Tuesday that it has raised around $13.5 billion.

David Buik, markets analyst at BGC Partners, said financial stocks may be "close to their temporary zenith" unless U.S. Treasury Secretary Tim Geithner reassures lawmakers in Congress later that the banking recovery is "going swimmingly."

Earlier, Asian markets were mixed with Japan's Nikkei 225 stock average edging up 54.35 points, or 0.6 percent, at the close to 9,344.64, but Hong Kong's Hang Seng ending down 68.19 points, or 0.4 percent, to 17,475.84.

Japan's gains came despite confirmation that the economy -- the world's second biggest -- shrank at an annual rate of 15.2 percent as exports plunged and companies slashed production.

Analysts said markets could meander in the short term after rallying the couple months -- with some major indexes turning positive for the year. The Standard & Poor's 500 index in the U.S. has risen around 30 percent from its lows.

The trigger for the gains over the last couple of months has been some better than expected economic news around the world, particularly from the U.S. However, fairly downbeat U.S. retail sales data last week reined in some of the hopes of the more optimistic members of the investing community and stocks have since generally traded sideways.

Analysts said it has been noticeable that any corrections seen since the rally began in mid-March have been relatively mild, suggesting that there are still enough investors out there willing to buy into dips.

Philip Manduca, head of investment at ECU Group, reckons the S&P will overshoot to the upside, possibly up to 950 before the summer ends "as euphoria accentuates and the TV channels trumpet a new bull market."

However, Manduca thinks the S&P will end the year near its fair value of closer to 750 to 850 "but not before all the bears get heavily squeezed into taking a loss and the new bulls get caught at the top."

Futures markets were showing that the U.S. stocks would rise only modestly at the open. Dow futures were up 12 points, or 0.1 percent, at 8,461 while the S&P 500 futures rose 2.1 points, or 0.2 percent, at 908.60.

Elsewhere in Asia, South Korea's market added 0.5 percent to 1,435.70 while Shanghai's index declined 0.9 percent. India's market shed nearly 2 percent after soaring earlier this week after national elections settled the country's near-term political future. Markets in Taiwan, Australia and Singapore were marginally higher.

Broader stock indicators were mixed. The Standard & Poor's 500 index fell 1.58, or 0.2 percent, to 908.13.

Oil prices hovered above $60 a barrel Wednesday, with benchmark crude for July delivery up 50 cents to $60.60 a barrel. On Tuesday, the contract rose 51 cents to settle at $60.10.

The dollar recovered some ground to trade slightly down at 95.81 yen from 96.09 yen. The euro was a tad higher at $1.3668 from $1.3645 earlier.

[Associated Press; By PAN PYLAS]

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

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