Alcoa weighs on world stocks

[February 04, 2010]  LONDON (AP) -- European stock markets fell Tuesday after aluminum company Alcoa Inc. kicked off the fourth quarter U.S. corporate reporting season with disappointing earnings and China tightened monetary policy once again.

The FTSE 100 index of leading British shares was down 75.19 points, or 1.4 percent, at 5,462.88 while Germany's DAX fell 82.49 points, or 1.4 percent, to 5,958.01. The CAC-40 in France was 43.77 points, or 1.1 percent, lower at 3,999.32.

U.S. stocks were also poised to open lower following a modest advance on Monday -- Dow futures were 67 points, or 0.6 percent, lower at 10,537 while the broader Standard & Poor's 500 futures fell 8 points, or 0.7 percent, to 1,134.50.

Sentiment has been dented by below-forecast earnings from Alcoa, the world's biggest aluminum producer. The company reported earnings, after stripping out exceptional items, of only 1 cent a share -- short of the 5 cents predicted in the markets.

"Many are now worried that the early miss by Alcoa could be the theme of what is likely to be a fairly mixed and crucial earnings season," said James Hughes, market analyst at CMC Markets.

With economic data this week on the light side, attention will continue to focus on earnings statements to see if the increasing optimism on Wall Street, that has seen stocks enjoy a ten-month bull run, is justified by the fundamentals.

The key driver to stock market performance, at least in the first part of the year, will likely be whether economic and corporate figures, particularly out of the U.S., back up the optimism that is evident in company valuations.

Stock markets around the world have rallied strongly since March's lows -- the Dow and the S&P 500 for example surged more than 60 percent since then -- as investors grew more optimistic about the global economic recovery after central banks and governments pushed through extraordinary policy measures to mitigate the deepest recession since World War II.

Investors are particularly interested to see if companies' sales are improving -- that would provide clear evidence that the global economic recovery is on a solid footing and that earnings can be lifted by more than just cost-cutting.

Earlier, most stock markets declined, though Japan's Nikkei 225 stock average, which was closed for a public holiday on Monday, ended 80.82 points, or 0.8 percent, higher at 10,879.15.

The advance in Japan came about even though Japan Airlines, Asia's largest carrier, dived 45 percent to a new record low amid fears it will file for bankruptcy protection.

Hong Kong Hang's Seng, meanwhile, dropped 84.88 points, or 0.4 percent, to 22,326.64 and Australia's benchmark slid 1 percent. South Korea's Kospi advanced 0.3 percent to 1,698.64.

China's Shanghai index jumped 61.22 points, or 1.9 percent, to 3,273.97 even though the People's Bank of China increased the interest rate on its one-year bill by 8 basis points to 1.84 percent, having been steady since August.

The rise was the second undertaken in the interbank markets in a week and provided a further hint that more substantial interest rate increases could be in the offing as Chinese economic growth accelerates.

"The PBoC are sensibly taking early steps to avoid overheating in the property market but the Chinese economy should continue to perform well during 2010," said Neil Mackinnon, global macro strategist at VTB Capital.

Elsewhere, Singapore's market lost 0.5 percent and Taiwan retreated 0.2 percent

In oil markets, benchmark crude for February delivery was down 48 cents to $82.04 a barrel in electronic trading on the New York Mercantile Exchange. On Monday, a weakening U.S. dollar helped push the contract to a 15-month high near $84 a barrel before it settled down 23 cents at $82.52.

The dollar fell 0.4 percent to 91.69 yen while the euro dipped 0.2 percent to $1.4483.

The euro has been undermined by fresh concerns over Greece's ability to cut its budget deficit to 3 percent of gross domestic product in 2012 after an editorial in the Financial Times newspaper argued the case in favor of Greece leaving the euro zone and EU officials warned about irregularities in the country's budget statistics.

"There is a lot of political credibility invested in monetary union and at this stage it is way too early to bet that the system will break down," said Jane Foley, research director at Forex.com. "That said, the euro will remain vulnerable to negative news surrounding budgets within the eurozone going forward."

[Associated Press]

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

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