European markets steady after day-earlier losses

[May 20, 2010]  LONDON (AP) -- European stock markets steadied Thursday following the previous day's losses while the euro clambered up from four-year lows. Sentiment remained subdued by ongoing concerns over Europe's government debt crisis and the political response to it.

In Europe, the FTSE 100 index of leading British shares was 44.37 points, or 0.9 percent, higher at 5,202.45 while Germany's DAX rose 11.59 points, or 0.3 percent, to 6,000.26. The CAC-40 in France rose 26.85 points, or 0.8 percent, at 3,538.52.

A subdued opening was expected on Wall Street after Wednesday's late rally saw U.S. stocks trim a large chunk of their earlier losses -- Dow futures were down 3 points at 10,402 while the broader Standard & Poor's 500 futures rose 0.3 point at 1,110.20.

Despite the relative calm Thursday, Europe's debt crisis remains center stage -- on Wednesday, stocks around the world took a hammering after Germany's regulator said it was banning so-called naked short-selling of eurozone government bonds and shares in ten key German financial institutions until March 31.

In a typical short sale, a trader sells borrowed shares in hopes of buying them cheaper later and profiting on the difference. A "naked" short is when traders sell shares without borrowing them first.

Investors were spooked partly because Germany's move against the practice was unilateral without any consultation with its partners in the eurozone, and suggested to some an uncoordinated policy response.

Paul Mortimer-Lee and Eoin O'Callaghan said the German ban was troubling as it suggested disagreement among eurozone policymakers at a time when the markets were looking for the very opposite.

"Cooperation and coordination is crucial given the inevitable tensions an explicit or implicit bailout of some of the economies of the eurozone by others will bring," they said.

In the currency markets, the euro was down 0.5 percent on the day at $1.2369. However, that's still way up from the four-year low of $1.2146 recorded Wednesday in the wake of the German ban.

David Buik, markets analyst at BGC Partners, said currency traders have banked their profits and are now awaiting developments, "either further political blunders or full-on evidence that austerity packages really have been implemented and that the situation really has improved."

Earlier, Asian stock markets dropped in the wake of Wednesday's declines in Europe and the U.S. Renewed tensions between North Korea and South Korea did not help nor did unrest on the streets of Bangkok.

Japan's benchmark Nikkei 225 stock average dropped 1.5 percent to 10,030.31 after the government said the economy grew 4.9 percent in the first quarter, less than analysts expected. Australia's main index fell 1.6 percent to 4316.50 while shares in Shanghai, Hong Kong and Indonesia also fell.

Singapore's benchmark index fell 0.8 percent despite strong first quarter economic growth. The government said Thursday that Singapore's gross domestic product jumped 16 percent from a year earlier.

South Korea's Kospi index fell 1.8 percent to 1,600.18 after the government announced that an investigation showed overwhelmingly that North Korea fired a torpedo that sank the Cheonan warship and killed 46 sailors. North Korea has denied involvement in the sinking and vowed Thursday to wage "all-out war" if punished for the sinking of the ship.

Thailand's stock market was closed Thursday after a confrontation between the army and anti-government protesters sparked rioting and arson in Bangkok. The exchange was one of the building's torched by rioters but damage was largely limited to its ground floor.

Benchmark crude for June delivery was up 16 cents to $70.03 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 46 cents to settle at $69.87 on Wednesday after dropping earlier in the session to $67.90, the lowest since September.

[Associated Press; By PAN PYLAS]

Associated Press writer Alex Kennedy in Singapore contributed to this report.

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