European stocks ease back after bumper week

[November 08, 2010]  LONDON (AP) -- European stock markets fell modestly Monday as investors took a breather following last week's big gains, which sent many of the world's major indexes above where they were when Lehman Brothers collapsed in September 2008.

In Europe, the FTSE 100 index of leading British shares was down 8.93 points, or 0.2 percent, at 5,866.42 while Germany's DAX fell 9.41 points, or 0.1 percent, to 6,744.79. The CAC-40 in France was 8.21 points, or 0.2 percent, lower at 3,908.52.

Wall Street was poised to open modestly lower, too -- Dow futures were down 26 points, or 0.2 percent, at 11,350 while the broader Standard & Poor's 500 futures fell 2.4 points, 0.2 percent, to 1,219.50.

Stocks have been buoyed in recent weeks by expectations the Federal Reserve would be pumping more money into the U.S. economy in its latest attempt to shore up the recovery and get the unemployment rate down. Last Wednesday, the Fed announced it will plough up to $600 billion more into the financial system to lower market interest rates and inspire lending. However, if the U.S. data continues to beat expectations and points to stronger than anticipated growth, the Fed has suggested it may not need to buy the full amount of assets over the next eight months.

With little scheduled economic news Monday, investors have started the week cautiously.

"It's difficult to imagine that the coming days won't see a degree of reflection over that latest move," said Chris Weston, research analyst at IG Markets.

The tepid start to the week is unsurprising in the context of last week's bumper gains.

In the U.S., the Dow Jones index ended the week 2.8 percent higher while the S&P 500 closed up 3.5 percent -- both hit their highest levels since September 2008. In Europe the FTSE in London rose 3.5 percent to a 29 month high and in Asia, Japan's Nikkei index surged 4.6 percent and Hong Kong's Hang Seng climbed 7.7 percent.

The early point of interest this week has centered on the debt problems in Europe, most notably in Greece and Ireland.

A strong performance by the government led by Prime Minister George Papandreou in local elections have helped to shore up market confidence that the austerity measures will continue for a while yet.

"Papandreou has now ruled out calling snap national elections, pleasing the IMF who had become nervous over the prospect of political instability which would further complicate fiscal consolidation efforts," said Lee Hardman, currency economist at the Bank of Tokyo Mitsubishi UFJ.

"Still, the Greeks' attempts to eliminate the budget deficit from over 15 percent of GDP, and stabilize debt at just below 150 percent appears to be a Herculean task backing up the market's conviction that debt restructuring is inevitable," Hardman added.

Though the Greek election results generated a sigh of relief, Ireland's budget crisis appears to be getting worse.

There are growing market jitters over whether the Irish government will be able to push through more spending cuts next month after the main opposition party said it would not be backing another dose of austerity.

In the currency markets, the euro continued to drop back from recent highs, trading 0.9 percent lower at $1.3934, while the dollar was 0.2 percent lower at 81.09 yen.

The main issue for currency traders this week will be the meeting on Thursday and Friday of the leaders of the Group of 20 industrial and developing nations in Seoul. Last week's move by the Fed has caused a degree of concern in China and Germany in particular, who also seem reluctant to back a U.S. plan to target current account surpluses to 4 percent of GDP.

"Currencies will nonetheless remain the major topic of discussion although expectations of a global agreement are likely to be disappointed," said Mitul Kotecha, head of global foreign exchange strategy at Credit Agricole.

Earlier in Asia, stocks outperformed their counterparts in Europe as investors responded to the better than anticipated U.S. jobs report for October, with Japan's Nikkei doing particularly well, closing up 1.1 percent at 9,732.92. South Korea's Kospi closed up 0.2 percent at 1,942.41. Hong Kong's Hang Seng rose 0.4 percent to close at 24,964.37.

In China, the benchmark Shanghai Composite Index gained 0.9 percent to 3,159.51, to hit its highest close since April while the Shenzhen Composite Index for China's smaller, second exchange gained 1.8 percent to 1,376.29.

Bucking the trend, Australia's S&P/ASX 200 slipped 0.5 percent to 4,778.4.

Benchmark oil for December delivery was up 57 cents at $86.28 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 36 cents to settle at $86.85 on Friday.

[Associated Press; By PAN PYLAS]

Pamela Sampson in Bangkok contributed to this report.

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