European markets stabilize after heavy losses

[May 22, 2009]  LONDON (AP) -- European stocks rose Friday, recovering from a sharp fall Thursday and shrugging off overnight losses in the U.S. and Asia as investors clung to hopes that the global recession is bottoming out and looked for bargains ahead of the weekend.

Asian and U.S. stocks closed lower as the possibility of credit rating downgrades for major economies and bleak unemployment figures in the U.S. added to fears the recent months' rally was built on shifting sands.

But after Thursday's rout, some European investors on Friday were picking up what they saw as beaten-down stocks, and mining and oil shares were helped by higher prices for metals and crude. Trading volumes were limited, however, with many Europeans taking a long weekend for the Ascension Day holiday and with Britain closed Monday.

In European morning trading, Germany's DAX 30 was 0.9 percent higher at 4,942.60 and Britain's FTSE 100 was up 0.6 percent at 4,371.74. France's CAC 40 rose 0.7 percent to 3,241.19.

Asian indexes closed mostly lower after sharp losses overnight in the U.S. Like Europe, Wall Street was expected to bounce back somewhat on the open. Dow futures were up 45 points to 8,340 and S&P futures gained 6.1 points to 894.80.

Friday's recovery in Europe was also partly technical, with stocks like Anglo American and BHP Billiton up about 3 percent as investors chose to park their capital in commodities for the weekend -- sending prices of copper, nickel and crude higher.

On Thursday, world markets were unnerved by Standard & Poor's warning that Britain's AAA credit rating may be cut if the government fails to address its increasing levels of debt. That would raise the cost of borrowing for the British government, which is taking a big role in bailing out that country's stricken banks, and could mean similar warnings for other debt-laden governments.

The threat of a downgrade could signal similar problems for the United States and other big economies staggering under a growing mountain of debt as they try to spend their way out of recession.

"Sovereign credit ratings are back on the radar following the UK's rating being placed on negative outlook by Standard & Poor's yesterday morning. Who will be next?" analysts at Calyon wrote in a note Friday.

The S&P downgrade "did help remind the market that even if we are on the road to recovery, the journey is likely to be a bumpy one," said Stuart Bennett, senior strategist at Calyon.

A U.S. employment report from the world's biggest economy was equally dispiriting. Though the number of newly laid-off workers seeking unemployment benefits in the U.S. fell 12,000 to 631,000 last week, continuing claims rose to 6.7 million -- hitting a new record for the 16th consecutive week in data that goes back to 1967.

"It seems the markets are at a crossroads. What we're seeing today is a lot of confusion," said Kirby Daley, senior strategist at Newedge Group in Hong Kong. "There is no consensus view right now, and that's leaving investors confused."

British Airways shares were down more than 5 percent after it reported its biggest full-year loss since the former national airline was privatized in 1987, due to higher fuel costs and sliding sales. The company also cut all dividends and manager bonuses.

In Tokyo, Japan's Nikkei 225 stock average gave up early gains to drop 38.84 points, or 0.4 percent, to 9,225.81, while Hong Kong's Hang Seng index was off 136.97, or 0.8 percent, at 17,062.52. Elsewhere, South Korea's Kospi slipped 1.3 percent and Australia's benchmark fell 1.4 percent.

Among the few gainers, Taiwan rose 0.3 percent and Malaysia's index rose 0.8 percent.

Stocks in Tokyo were also pressured by a strong yen, which hurts profits of the country's brand name exporters. The dollar was trading at 94.16 yen compared to 93.91 late Thursday in New York, while the euro edged up to $1.3948 from $1.3766.

Toyota Motor Corp., the world's No. 1 automaker, dropped 2.2 percent, Sony Corp. shed 2.0 percent and Japan's top chipmaker Toshiba Corp. fell 1.2 percent.

On Thursday, the Dow fell 1.5 percent to 8,292.13, the Standard & Poor's 500 index fell 1.7 percent to 888.33, while the Nasdaq composite index fell 1.9 percent to 1,695.25.

In oil markets, benchmark crude for July delivery was up 68 cents to $61.73 a barrel in the morning in Europe in electronic trading on the New York Mercantile Exchange.

[Associated Press; By CARLO PIOVANO]

AP Business Writers Stephen Wright in Bangkok and Jeremiah Marquez in Hong Kong contributed to this report.

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