Alcoa lifts markets despite Portugal downgrade

[July 13, 2010]  LONDON (AP) -- European stock markets rose Tuesday after aluminum company Alcoa Inc. kicked off the U.S. corporate reporting season with a strong set of earnings, though optimism was reined in by a credit rating downgrade to Portugal and fears about the Chinese property market.

In Europe, the FTSE 100 index of leading British shares was up 55.79 points, or 1.1 percent, at 5,222.81 while Germany's DAX rose 72.21 points, or 1.2 percent, to 6,149.40. The CAC-40 in France was 40.42 points, or 1.1 percent, higher at 3,608.08.

Wall Street was also poised to open modestly higher, with Dow futures up 34 points, or 0.3 percent at 10,215, and the broader Standard & Poor's 500 futures 5.1 points, or 0.5 percent, firmer at 1,081.70.

Alcoa, which traditionally kicks off the earnings season, beat estimates with its second-quarter results in an after-hours statement Monday. Its earnings per share of 13 cents for the second quarter was 2 cents better than expected.

Ben Potter, a market strategist at IG Markets, said Alcoa's "upbeat" earnings has reignited confidence that the other corporate announcements over the weeks ahead "will also impress."

A slew of American companies release quarterly results in the coming weeks and Alcoa's result spurred hopes that the earnings season will provide reassuring signs of recovery in the world's biggest economy.

Investors, though, are likely to keep their optimism about the U.S. economic recovery in check, especially as the recent newsflow has been somewhat disappointing.

"Recent weaker economic figures from the U.S. are likely to make many investors a little wary of any positive numbers during earnings season," said James Hughes, market analyst at CMC Markets.

Sentiment was also dampened by the news that Moody's Investor Services downgraded its rating on Portugal by two notches to A1 amid concerns over the country's financial strength over the medium term in light of waning growth prospects.

In Germany, the ZEW survey of investor sentiment showed confidence dropped for a third consecutive month to below a long-running average due to worries about the debt crisis and its implications for one of the world's largest exporters.

Greece, the most indebted of eurozone economies in terms of its borrowing relative to economic output, is also in the spotlight Tuesday as it taps the markets for the first time since its euro110 billion bailout in May from its 15 partners in the eurozone and the International Monetary Fund. The country is auctioning euro1.25 billion in six-month Treasury bills and all eyes will be on what interest rate investors demand.

"If Greece is able to issue at any rate below 5 percent, the rate at which Greece can borrow from the EU/IMF funds, especially if driven by a pickup in foreign investors' demand, these would be positive signs that the bailout program is working in terms of bringing market confidence back," said Geoffrey Yu, an analyst at UBS.

Confidence in Asia had also been dented by a tumble in Chinese stocks, following the news that property prices have fallen for the first time in 18 months -- a sign that government tightening measures are having an effect.

That maybe welcome news for policymakers who hope to avoid a property bubble but it has also raised concerns among investors that China's rapid rebound from the global recession could slow.

The Shanghai Composite index retreated 1.6 percent to 2,450.29 as investors sold property developers and banks, which have lent heavily to the property sector. That led to choppy trading in Hong Kong where the Hang Seng index was down 0.2 percent to 20,429.

Chinese housing prices declined 0.1 percent in June from May and the government said it had no plans to ease curbs on property development.

"This is certainly a big damper on the market. But it's actually impossible for the government to drop the policy, while housing prices hardly fell," said Chen Huiqin, an analyst for Huatai Securities in the eastern city of Nanjing.

Japan's Nikkei 225 stock average fell 0.1 percent to 9,537.23 and South Korea's Kospi was hardly changed at 1,735.08.

Elsewhere, Australia's S&P/ASX 200 dropped 0.7 percent. Benchmarks in Singapore, Taiwan, Indonesia and India also fell while markets in Malaysia, Vietnam and Sri Lanka rose.

The Dow Jones industrial average closed 0.2 percent higher overnight and the Standard & Poor's 500 index rose 0.1 percent.

In the currency markets, the dollar was down 0.3 percent on the day at 88.41 yen while the euro slipped 0.4 percent to $1.2541.

Benchmark crude for August delivery was down 5 cents at $74.90 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost $1.14 to settle at $74.95 on Monday.

[Associated Press; By PAN PYLAS]

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