European stocks steady as Fed rate hike fears ease

[February 22, 2010]  LONDON (AP) -- European stock markets were little changed Monday despite big gains across Asia earlier as concerns of higher U.S. borrowing costs later this year diminished ahead of testimony from Federal Reserve chairman Ben Bernanke.

Ongoing worries about the debt crisis afflicting Greece kept investors on their toes.

In Europe, the FTSE 100 index of leading British shares was up 12.32 points, or 0.2 percent, at 5,370.49 while Germany's DAX fell 4.86 points, or 0.1 percent, to 5,717.19. The CAC-40 in France was 2.85 points, or 0.1 percent, lower at 3,766.69.

Earlier in Asia, Japan's Nikkei 225 stock index jumped 276.89, or 2.7 percent, to 10,400.47 after earlier surging more than 3 percent. Hong Kong's main index climbed 483.25, or 2.4 percent, to 20,377.27. Only Chinese shares lost ground, with the main Shanghai index retreating 0.5 percent in the first day of trade after weeklong Lunar New Year holidays.

The focus in the markets will likely be Bernanke's testimony to U.S. lawmakers on Wednesday and Thursday.

In particular, investors will be interested to hear what Bernanke says about last week's decision by the Fed to raise its discount rate by a quarter of a percentage point to 0.75 percent -- the discount rate is the rate banks pay for emergency loans from the Fed.

The discount rate rise last Thursday stoked some fears in the markets that the Fed was paving the way for possible increases in its benchmark funds rate later in the year. But the news that inflation remained extremely subdued in January coupled with comments from Fed officials suggest that the benchmark rate may not actually rise this year.

"No sooner had the Fed raised its discount rate by 25 basis points last week before a whole host of Fed officials lined up to reassure investors that the decision was by no means a precursor to a marked tightening in policy," said Neil Mellor, an analyst at Bank of New York Mellon.

"Amidst unrelenting talk of tighter policy globally in 2010, the episode is a reminder of just how cautious officials have become -- and for good reason," Mellor added.

Nevertheless, there is a growing optimism that the recovery, at least in the U.S., is on a sure footing and that has helped stock markets eke out further gains over the last couple of weeks -- further earnings statements from the likes of

Wall Street was poised for modest gains later -- Dow futures were up 23 points, or 0.2 percent, at 10,401 while the broader Standard & Poor's 500 futures rose 2.6 points, or 0.2 percent, to 1,108.80.

Investors around the world will also be keeping a beady eye on any developments surrounding Greece's debt crisis, which has unnerved holders of the euro currency over the last month or two. Specifically, they will be looking to see if the Greek government announces a sizable bond issue as it looks to roll over debt payments due soon.

"One concern of investors that will not easily go away is lingering eurozone fiscal-debt problems and the consequent damage to economic growth in the region," said Mitul Kotecha, an analyst at Calyon Credit Agricole.

"Such worries continue to threaten any recovery in the euro especially the lack of concrete detail of any possible assistance for Greece," added Kotecha.

By late-morning London time, the euro was down 0.2 percent at $1.3607 -- above last week's nine-month low of $1.3444.

Elsewhere in Asia, South Korea's market rose 2.1 percent, while Australia's market closed up 1.8 percent and Taiwan's market gained 1.6 percent.

Oil prices hovered near $80 benchmark crude for March delivery up 2 cents at $79.83.

[Associated Press; By PAN PYLAS]

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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