World stocks lower as dollar strengthens

[October 18, 2010]  LONDON (AP) -- World stocks fell Monday at the start of a busy week on both the economic and corporate news front, while the dollar recouped some recent losses amid ongoing uncertainties about how much new money the Federal Reserve is preparing to pump into the U.S. economy.

In Europe, the FTSE 100 index of leading British shares was down 21.98 points, or 0.4 percent, at 5,681.39 while Germany's DAX fell 10.48 points, or 0.2 percent, at 6,481.82. The CAC-40 in France was 21.05 points, or 0.6 percent, lower at 3,806.32.

Wall Street was also poised to open lower later -- Dow futures were down 75 points, or 0.7 percent, at 10,949 while the broader Standard & Poor's 500 futures fell 6.3 points, or 0.5 percent, to 1,168.60.

There's a lot of scheduled news to occupy investors this week, including a raft of U.S. corporate earnings statements from all types of U.S. businesses, including Apple, Coca-Cola, Harley Davidson, McDonald's and Xerox.

The main point of interest later will likely be Citigroup Inc.'s third quarter results as the banking reporting season moves up a gear.

"The third quarter earnings season is expected to see a drop in profitability, though the market would be hopeful that momentum will pick up in the fourth quarter," said David Buik, markets analyst at BGC Partners.

Aside from the corporate newsflow, investors will continue to monitor the economic data in the context of what the Fed is planning to do to prop up the ailing U.S. economy.

In hindsight, Friday's speech by Fed chairman Ben Bernanke failed to offer investors much more clarity on what the central bank will annouce the conclusion of its next rate-setting meeting on November 3.

Though Bernanke said the case for another monetary stimulus was growing, he was quiet on the pace and size of any new measures.

After initially dropping in the wake of Bernanke's remarks, the dollar has since recovered its poise, particularly against the euro.

"The persistent and heavy selling of the dollar has partially reversed due to the speech, that was a little more balance and reserved in regard to the options available to ease monetary policy than maybe the market was expecting," said Derek Halpenny, European head of global currency research at the Bank of Tokyo-Mitsubishi UFJ.

The prospect of more dollars floating around the system has piled the pressure on the currency itself over the last few weeks. Some investors are now thinking that the market has priced in too much easing.

By mid morning London time, the euro was 0.6 percent lower at $1.3884, and substantially below last week's fresh eight and a half month high of $1.4121.

The yen though remains in favor and continues to push up towards last week's fresh 15-year high against the dollar, which was trading 0.3 percent lower at 81.18 yen.

The dollar perked up against the pound too, amid mounting expectations that the Bank of England will itself soon announce further monetary easing in the wake of this week's spending cuts announcement from the coalition government -- investors will be keeping a close eye on a speech Tuesday from Bank of England governor Mervyn King and Wednesday's publication of the minutes to the last rate-setting meeting.

The pound was down 0.6 percent at $1.5881.

Currencies will form the backdrop to this weekend's meeting of finance ministers from the Group of 20 industrialised and developing countries in Korea.

There are worrying signs that the consensual approach that emerged at the height of the financial crisis around two years ago is breaking up as the U.S. and China quarrel over their respective economic policies.

Earlier in Asia, Japan's Nikkei 225 stock average ended more or less flat, finishing at 9,498.49.

Chinese shares fell on massive profit-taking Monday, as caution set in after seven straight days of gains.

The benchmark Shanghai Composite Index lost 15.93 points, or 0.5 percent, to 2,955.23. The Shenzhen Composite Index for China's smaller, second exchange dropped 1.4 percent, to 1,196.23.

Hong Kong's Hang Seng dropped 1.2 percent to 23,469.38. Banking heavyweight HSBC was down more than 2 percent -- weighed down by U.S. financial stocks that have been affected by mortgage problems that could cost big banks billions.

Benchmark oil for November delivery was down 80 cents to $80.45 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

Associated Press writer Pamela Sampson in Bangkok contributed to this report.

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