European markets fall on fears stocks overvalued

[September 01, 2009]  LONDON (AP) -- European markets dropped Tuesday after a mild rebound in Asia, as investors worried that stocks are overvalued and that an economic recovery will be only gradual.

In Europe, that view was underscored by data showing the euro zone's unemployment rate hit a new 10-year high in July.

In Germany, the DAX fell 77.18 points, or 1.4 percent, at 5,387.43, while Britain's FTSE 100 fell 57.17 points, or 1.2 percent, to 4,851.73. In France, the CAC-40 lost 32.09 points, or 0.9 percent, to 3,621.45.

Asian stocks closed mostly higher on relief that China's main index has stabilized after sharp drops Monday, but gains were limited as investors worried that Beijing may cut down on stimulus spending. Wall Street was expected to slide on the open.

In Europe, the mood was not helped by data showing unemployment in the 16 nations that use the euro rose to 9.5 percent in July from 9.4 percent the previous month despite recent upbeat economic indicators.

Jennifer McKeown, economist at Capital Economics, said that while the rise was moderate, "as unemployment tends to lag behind developments in the wider economy, we still expect to see further increases in the coming quarters."

"Accordingly, the recent recovery in consumer spending may not be sustained."

That view has hurt stock markets this week, as investors fret that the gains accumulated since March may have left equities overpriced, even considering the improving economic data.

"Markets are still looking for clues to the likely shape of recovery," said Mitul Kotecha, analyst at Calyon.

"It still appears that a gradual rather than rapid recovery is in the offing. Either way, stock markets have run out of fuel."

Asian markets rebounded modestly, with China's key index edging up after tumbling the previous day.

The drop in Shanghai's volatile market Monday triggered a wave of selling in markets around the world, adding to concerns stocks have rocketed too high, too fast in recent months. But Tuesday the mood was steadier in Asia, helped by data showing that China's manufacturing growth accelerated in August to its fastest rate this year.

"Panic selling has stopped, at least for today," said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong. "Investors are trying to regain direction after yesterday's sell-off."

The Shanghai Composite Index was up 15.98 points, or 0.6 percent, at 2,683.72, following a 6.7 percent plunge Monday that took it to its lowest level in three months.

Hong Kong's Hang Seng climbed 138 points, or 0.7 percent, to 19,862.19, while Tokyo's Nikkei 225 stock average rose 37.53 points, or 0.4 percent, to close at 10,530.06.

Gains in Japanese shares were constrained by doubts over the ability of the newly elected Democrats to help revive the moribund economy. But news that car sales rose 2.3 percent in August from a year earlier, the first such gain in over a year, pushed auto shares higher.

Shares were also higher in South Korea, Taiwan, India, Singapore and Australia, but fell in the Philippines and New Zealand.

Chinese investors remained jittery after seeing shares drop nearly 10 percent in the previous two sessions on heavy selling of big company shares due to fears the government might pull back on the lavish bank lending that has helped push prices sharply higher this year.

Added to that is the perennial worry that new shares might flood the markets as lockup periods expire and companies launch more initial public offerings. The combination would mean less money to chase more stocks.

"The market is too weak to attract fresh cash, while investors with shares in hand can't wait to sell out. This will last a while, not just a few days," said Qian Qimin, a strategist at Shenyin Wanguo Securities, in Shanghai.

The Shanghai benchmark is still about 50 percent higher so far this year, but it has fallen sharply after surging more than 80 percent by Aug. 4.

"Black August," some have dubbed the bleak weeks since then.

On Wall Street Monday, stocks fell in light trading. The Dow fell 47.92, or 0.5 percent, to 9,496.38. The S&P 500 index fell 8.31, or 0.8 percent, to 1,020.62, while the Nasdaq fell 19.71, or 1 percent, to 2,009.06.

U.S. stock index futures were down. Dow futures were down 55 to 9,513, while S&P futures were down 6.70 points at 1,022.80.

Oil rose, with benchmark crude for October delivery up 41 cents to $70.37 a barrel in electronic trading on the New York Mercantile Exchange.

In currencies, the dollar rose to 93.10 yen from 92.94 yen late Monday in New York. The euro edged up to $1.4328 up from $1.4327.

[Associated Press; By CARLO PIOVANO]

Associated Press writer Elaine Kurtenbach in Shanghai contributed to this report.

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