European markets up as euro falls to 4-year low

[May 17, 2010]  LONDON (AP) -- European stock markets rebounded Monday after big falls at the end of last week but the euro continued to languish near four-year lows against the dollar amid ongoing worries about the continent's sovereign debt crisis.

In Europe, the FTSE 100 index of leading British shares was up 31.94 points, or 0.6 percent, at 5,294.79 while Germany's DAX rose 23.27 points, or 0.4 percent, to 6,079.98. The CAC-40 in France was 5.91 points, or 0.2 percent, at 3,566.27.

Earlier in Asia, stocks slid as investors responded to the sharp falls in Europe and the U.S. last Friday.

Most attention continued to center on the European debt crisis as investors fretted that efforts to cut deficits and debt will kill off growth by withdrawing government stimulus from economies in Greece, Spain and Portugal. Those are key export for countries whose finances are in better shape such as France and Germany.

Last week's EU-led euro750 billion rescue package may have eased near-term concerns that the a eurozone country will default on its debt but has done little to assuage worries that the fiscal stringency being planned will work -- in an interview with German newspaper Der Spiegel Monday, European Central Bank President Jean-Claude Trichet said Europe's economy "is in its most difficult situation since World War II or perhaps even since World War I."

Those worries had weighed on expectations before the open in Europe, but stocks in any case proved to be resilient even as foreign exchange markets sold off the euro.

"Before the financial markets opened, we were quite worried that they would drop in Europe....we now see that this tendency is not as harsh as we expected it to be," said Alain Crouzat, head of Paris-based asset management firm Montsegur Finance.

However, Crouzat said the outlook for the rest of the week remains uncertain, particularly because of the sharp fall in the euro over the last week or so.

The biggest casualty from the eurozone debt crisis has been the euro, which is down 0.4 percent on the day at $1.2306 -- earlier it had fallen to a four-year low of $1.2237.

"Ongoing uncertainty regarding the economic situation in Europe is still dominating the agenda," said Ben Potter, research analyst at IG Markets.

Analysts think the euro will remain under pressure until such a time as the markets think that cogent budgetary actions are in place for all the highly indebted countries.

In a note Monday, Fitch Ratings said investors are deeply skeptical about the ability of governments to get a handle on their huge debt burdens.

"Investors now perceive record government borrowing as the principal risk to market stability and economic recovery," said David Riley, a managing director at Fitch.

Fitch estimates that European governments will need to borrow euro2,200 billion in 2010 to finance large deficits and roll over existing debt -- up marginally on 2009, which was the largest borrowing requirement for decades.

"While the package of measures announced last weekend will moderate euro Area governments' vulnerability to 'confidence shocks' and extreme market volatility, investor confidence will remain fragile until European governments, including the UK, are seen to be delivering on fiscal consolidation and the economic recovery is secured," Riley said.

No dramatic turnaround in stock market sentiment is expected at Wall Street's open -- Dow futures were down 23 points, or 0.2 percent, at 10,586 while the broader Standard & Poor's 500 futures fell 1.9 point, or 0.2 percent, at 1,133.40.

Earlier in Asia, stocks fell sharply as investors worried about the impact of Europe's debt crisis on global growth.

Japan's benchmark Nikkei 225 stock average dropped 226.75 points, or 2.2 percent, to 10,235.76, while South Korea's Kospi lost 2.6 percent to 1,651.51 and Australia's S&P/ASX 200 index was down 3.1 percent at 4,467.20.

Hong Kong's Hang Seng index lost 2.1 percent, while Thailand sank 2.1 percent.

Benchmark crude for June delivery was down 92 cents to $70.69 a barrel in electronic trading on the New York Mercantile Exchange. The June contract lost $2.79, almost 4 percent, to settle at $71.61 on Friday.

[Associated Press; By PAN PYLAS]

Associated Press writer Alex Kennedy in Singapore and AP Business Writer Greg Keller in Paris contributed to this report.

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