Europe flat, Asia mixed before rate outlook

[September 03, 2009]  LONDON (AP) -- European stocks traded flat and Asian indexes were mixed Thursday, as investors awaited a European Central Bank meeting where the ECB was expected to raise its outlook but signal that interest rates will remain low for some time.

Germany's DAX was up a minuscule 0.10 points at 5,319.94 while Britain's FTSE 100 was down 2.67 points, or 0.1 percent, to 4,814.88. France's CAC-40 fell 0.94 points to 3,572.19, leaving it roughly unchanged on the day.

Asian market were sharply mixed, with China's volatile index jumping nearly 5 percent but Japan sliding lower, as investors weighed hopes of economic recovery against fears about the impact of job losses and the end to governments stimulus plans. Wall street was expected to edge higher on the open.

In Europe, markets were bracing for the ECB's policy announcement. Although the central bank is widely expected to keep its key interest rate at 1 percent -- a record low -- it is expected to raise its forecasts for growth. Traders will also be watching the press conference by President Jean-Claude Trichet for clues about the future direction of rates.

"We expect Trichet to acknowledge the recent improvement in activity, but to sound cautious about the sustainability of the recovery," UniCredit analysts said in a note to investors.

Although economic indicators have improved consistently over the summer, data released Thursday showing a drop in retail sales in July reminded markets that an economic recovery will be slow at best.

"July's 0.2 percent monthly fall in retail sales is a touch disappointing in the light of recent slightly more upbeat signals on the consumer sector," said Jonathan Loynes, chief European economist at Capital Economics in London.

Loynes noted the drop was mostly due to weaker food sales, "so there is some evidence that underlying sales are stabilizing after the sharp falls of the last year or so."

The debate about the sustainability of a recovery was felt in Asia as well, where the jump in Chinese stocks was not enough to get the region rallying.

"Sentiment is quite cautious right now," said Alex Tang, head of research at Core Pacific-Yamaichi International in Hong Kong. "The latest indicators keep suggesting we're going to see a weak recovery in the U.S., particularly in terms of consumer spending."

"All and all, the markets are definitely ahead of fundamentals when we look at all these uncertainties and concerns," he said.

Investors will be watching a U.S. survey on the services sector -- released by the Institute for Supply Management later in the day -- for more clues about a recovery in the American economy.

In Japan, the benchmark Nikkei 225 stock average lost 65.82 points, or 0.6 percent, to 10,214.64. Korea's Kospi closed relatively flat, and Australia's main benchmark fell 0.2 percent.

In China, the Shanghai Composite Index surged 130.05 points, or 4.8 percent to close at 2,845.02. That helped Hong Kong's market, where many Chinese companies are listed, and the benchmark Hang Seng added 1.2 percent to 19,761.68

Investors were cheered by a report that new lending by China's four biggest state-run banks was higher than market expectations. Further boosting sentiment were reports that stock regulators intend to ensure the stable development of markets. Markets in Taiwan, Thailand and Singapore also rose.

Overnight in the U.S., the still-deteriorating job market unnerved traders, and Wall Street closed lower for its fourth straight session Wednesday.

The Dow Jones industrial average fell 29.93, or 0.3 percent, to 9,280.67, pushing its four-day slide to 300 points, or 3.1 percent. The index crossed between gains and losses 108 times as it traded in the second-tightest point range this year.

The S&P 500 index fell 3.29, or 0.3 percent, to 994.75, while the Nasdaq composite index fell 1.82, or 0.1 percent, to 1,967.07.

Modest gains were expected on the open, with Dow futures up 30.00 points at 9,307.00 and S&P 500 futures up 4.10 points at 998.30.

Oil prices were marginally higher in Europe. Benchmark crude for October delivery gained 90 cents to $68.95 a barrel.

The dollar rose modestly to 92.39 yen from 92.25 yen. The euro edged up to $1.4299 from $1.4266.

[Associated Press; By CARLO PIOVANO]

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

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