European stocks ease; euro at 3-month dollar high

[August 03, 2010]  LONDON (AP) -- European stock markets mostly fell Tuesday after big gains in the previous session while the euro spiked to a fresh three-month high against the dollar amid a rising appetite for riskier and potentially more profitable investments.

In Europe, the FTSE 100 index of leading British shares was down 19.78 points, or 0.4 percent, at 5,377.33 while France's CAC-40 fell 9.78 points, or 0.3 percent, to 3,742.25. Germany's DAX bucked the trend however, rising 12.32 points, or 0.2 percent, to 6,304.45.

On Monday, all three European indexes posted hefty gains after better-than-expected manufacturing surveys in Europe and the U.S. revitalized hopes about the global economy at the start of a busy week of economic news.

"After the strong gains on Monday, a small sell-off in early trading hasn't concerned investors too much," said Yusuf Heusen, senior sales trader at IG Index.

U.S. stocks were poised for a modest fall at the open too -- Dow futures were down 19 points, or 0.2 percent, at 10,598 while the broader Standard & Poor's 500 futures fell 2 points, or 0.2 percent, to 1,119.80.

Heusen said it'll be particularly interesting to see if momentum can build again through the session.

"It seems to have had an injection of fresh enthusiasm yesterday so it should be an interesting session ahead to see if investors have the courage to build on yesterday's gains ," said Heusen.

For now though, there's been far more activity in the currency markets, where the euro's rally has gathered pace. By midmorning London time, the single European currency was trading 0.5 percent higher at $1.3245, its highest level since early May.

Over the last month or so, the euro has returned to favor as fears over the government debt crisis gripping a number of countries, most notably Greece, have eased, at the same time as a run of data have shown the U.S. economic recovery losing momentum.

However, in recent sessions the euro has benefited from an easing of fear and a general rise in risk appetite in the markets. Generally when investors have a higher appetite for risk, they move out of safer assets such as bonds and conservative dollar-denominated assets -- viewed as a safe haven -- into stocks, oil and other currencies in hopes of higher returns. The pound has also been a big beneficiary, rising to a seven-month high of $1.5963.

"The story over the last 24 hours remains one of dollar weakness and increasing risk appetite, despite continuing lackluster U.S. economic data," said Michael Hewson, an analyst at CMC Markets.

The focus over the rest of the week will likely be Thursday's interest rate meeting at the European Central Bank and whether the bank's president Jean-Claude Trichet sounds a more confident tone in his monthly press conference.

following the governing council's monthly rate-setting meeting.

Perhaps more important will be this Friday's U.S. non-farm payrolls data for July. The figures often set the market tone for a week or two, particularly in August, when trading volume slumps as investors, particularly in the U.S. and Europe, head off to the beach.

Earlier in Asia, most stock markets rallied in the wake of Monday's big gains in Europe and the U.S..

Japan's benchmark Nikkei 225 stock average jumped 123.70 points, or 1.3 percent, to 9,694.01 and South Korea's Kospi rose 0.5 percent to 1,790.60. Australia's S&P/ASX 200 added 0.7 percent to 4,571.60 and Hong Kong's Hang Seng advanced 0.2 percent to 21,457.66.

China's Shanghai Composite Index ended 1.7 percent lower at 2,627 however, though it had outperformed its counterparts in Asia on Monday.

Oil prices drifted back from three month highs, with benchmark crude for September delivery down 16 cents at $81.18 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $2.39, or 3 percent, to settle at $81.34 on Monday, the highest since May 4.

[Associated Press; By PAN PYLAS]

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