Europe, Asia fall on US finance-sector fears

[September 02, 2009]  LONDON (AP) -- European and Asian stocks fell Wednesday after an overnight sell-off on Wall Street as renewed fears about the U.S. financial sector gave investors a reason to cash out of markets many considered overvalued.

Equities, which had risen steadily since March, lost steam in August as experts warned that improved economic news had already been priced in. Lingering doubts about the pace of a recovery kept further gains in check, and when talk of more U.S. bank failures emerged late Tuesday, investors took money off the table.

Germany's DAX fell 40.44 points, or 0.8 percent, to 5,286.85, while Britain's FTSE 100 lost 28.39 points, or 0.6 percent, to 4,791.31. France's CAC-40 fell 27.72, or 0.8 percent, to 3,555.72.

After U.S. indexes lost about 2 percent each overnight, Asia also closed lower, with Japan's main index likewise sliding more than 2 percent. Wall Street futures pointed to a flat open later Wednesday.

Talk about growing bank losses, as well as an analyst downgrade of American International Group, led traders to dump financial shares, which had surged this summer.

"People are a bit cautious. A lot of money has already flowed into the markets," said Lorraine Tan, director of equities research at Standard & Poor's in Singapore. "The question now for most investors is 'do I put more in at these levels or wait for it to correct more,' because there's uncertainty out there about the strength of the U.S. recovery."

The drops came despite upbeat economic data, with U.S. manufacturing showing growth for the first time in 18 months and pending home sales rising more than expected to a 2-year high.

The stronger data trend was apparent in other countries, as well. A breakdown of the euro-zone's economic growth figures for the second quarter showed that higher household spending rose, partly compensating for falling investments and exports. Overall, gross domestic product was confirmed to have contracted by only 0.1 percent on the quarter.

The figure was "encouragingly broad-based," said Jennifer McKeown, European economist at Capital Economics in London.

However, although the data was "positive news in all", she noted spending may have been boosted by government stimulus programs, in particular for the auto sector.

The role of public stimulus spending has in fact cast a shadow over the improvement in economic data, mainly because its boost to growth cannot be expected to last indefinitely.

"As the data continues to improve more economies will be signaling that they will be winding down their support measures, a factor that may continue to weigh on equity markets, even if the high frequency data continues to surprise to the upside," said Stuart Bennett, analyst at Calyon.

Investor sentiment was not helped by news that a car bomb exploded outside the Athens Stock Exchange, damaging the building and injuring one person.

In Tokyo, the Nikkei 225 stock average retreated 249.60 points, or 2.4 percent, to close at 10,280.46 on worries about the resurgent yen. Among the hardest hit stocks was memory-chip maker Elpida Memory Inc., slammed over 16 percent after announcing plans to sell more than $800 million in new shares.

In Hong Kong, the Hang Seng lost 350.30, or 1.8 percent, to 19,522.00. Korea's Kospi was off 0.6 percent and India's Sensex fell 0.6 percent. Australia's benchmark shed 1.7 percent.

China offered a rare bright stop, with the Shanghai index gaining 1.2 percent, adding to a recovery after the country's market's plunged on Monday.

Wall Street was expected to open flat later in the day, with Dow Jones industrial average futures up only 1 point at 9,304.00 and the Standard & Poor's 500 futures down 0.3 points at 996.20.

On Tuesday, the Dow Jones industrial average dropped 185.68 points, or 2 percent, to 9,310.60 and the Standard & Poor's 500 fell 22.58, or 2.2 percent, to 998.04.

Oil prices climbed 50 cents to $68.55 a barrel after a two-day plunge as a drop in U.S. crude inventories suggested demand may be recovering.

The dollar fell to 92.62 yen from 92.93 yen late Tuesday, while the euro inched up to $1.4226 from $1.4219.

[Associated Press; By CARLO PIOVANO]

Associated Press writer Jeremiah Marquez in Hong Kong contributed to this report.

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