European markets push higher ahead of Trichet

[November 20, 2009]  LONDON (AP) -- European stock markets rose Friday despite a drop in Asia as investors recouped some of the previous day's hefty losses ahead of a key speech from European Central Bank president Jean-Claude Trichet.

The FTSE 100 index of leading British shares was up 40.17 points, or 0.8 percent, at 5,307.87 while Germany's DAX rose 39.63 points, or 0.7 percent, to 5,741.81. The CAC-40 in France was 24.82 points, or 0.7 percent, higher at 3,785.04.

Wall Street was set to open flat, with Dow futures down 1 point at 10,326 and the broader Standard & Poor's 500 futures 0.3 point higher at 1,094.60. On Thursday, the two main U.S. indexes slid around 1 percent amid mounting concerns about the U.S. economic recovery and an analyst's downgrade of the chip industry.

Investors are closely eyeing the 1,100 level for the S&P 500. Earlier this week, it managed to close above 1,100 for the first time in over a year but its failure to sustain the level is stoking market talk that the rally since March has dried up ahead of the year end.

"That big 1,100 number for the S&P remains an issue with a sustained move above here being required by many to determine that this is not just a bear market rally and with little on either the economic or corporate calendars today, it seems unlikely that any meaningful direction will be brought to the table," said Ben Potter, research analyst at IG Markets in Melbourne, Australia.

Stock markets have rallied strongly since March's lows as investors reined in their economic doomsday expectations to factor in a swifter than anticipated global economic rebound, but recent disappointing U.S. housing figures and mixed earnings from some of the country's leading retailers have dented the optimism. Many investors think stock valuations are now pricing in too rapid an economic recovery.

Neil Mackinnon, global macro strategist at VTB Capital, warned that there are a number of factors pointing to an imminent correction in stock markets -- as well as the failure of the S&P 500 to sustain a break above 1,100, he noted that the Nikkei is down 10 percent from it's highs and central banks in Asia are taking measures to discourage "hot money" inflow to stem the appreciation of their currencies against the dollar.

"Look for a correction soon with equity markets testing the October lows," said Mackinnon.

Given the paucity of economic and corporate news in Europe, most attention in Europe will focus on a speech later from Trichet, who will deliver the keynote address to the European Banking Congress in Frankfurt. With the title of the speech labeled "After the Crisis," investors will be looking for hints about when the European Central Bank will start to raise its key interest rate from their current record low of 1 percent.

Earlier, Japan's Nikkei 225 stock average lost 51.79, or 0.5 percent, to 9,497.68 even though the Bank of Japan revised up its forecasts for the world's second largest economy. Sony Corp. slid 2.4 percent as investors remained unconvinced by CEO Howard Stringer's plans to turnaround the loss-making electronics giant. Sony is headed for a back-to-back billion dollar loss in the fiscal year ending March, 2010.

Hong Kong's Hang Seng dropped 187.32, or 0.8 percent, to 22,455.84 and Australia's benchmark fell 1.3 percent. South Korea's Kospi was flat while China's Shanghai index shed 0.4 percent.

Elsewhere, benchmark crude for December delivery fell 46 cents to $77 a barrel while gold prices rose $2.20, or 0.2 percent, to $1,144.1 an ounce. Earlier this week, gold prices rose above $1,150 an ounce for the first time ever.

The dollar fell 0.2 percent to 88.85 yen while the euro dropped 0.3 percent to $1.4874.

Currency markets are focused primarily on Trichet's speech later to see if he says anything about the current high level of the euro, particularly against the dollar.

[Associated Press; By PAN PYLAS]

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

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