German shares weighed down by bank refunding talk

[September 10, 2010]  LONDON (AP) -- German stocks led European markets modestly lower Friday following reports that Deutsche Bank AG is planning to raise as much as euro9 billion ($11.4 billion) to lift its stake in Deutsche Postbank AG and shore up its capital base.

In Europe, the FTSE 100 index of leading British shares was down 0.1 percent at 5,489.27 while France's CAC-40 fell 5.1 points, or 0.1 percent, to 3,717.05.

Germany's DAX was 16.07 points, or 0.3 percent, lower at 6,205.45, with Deutsche Bank's 5 percent share price drop topping the list of fallers. Rival Commerzbank AG was the second bigger faller, with a 2.8 percent drop, as investors fretted that it may also need to tap the markets for cash, just days after a Wall Street Journal report reignited concerns that this summer's stress tests into 91 EU banks were not rigorous enough.

"Eurozone bank funding remains a worry," said Neil MacKinnon, global macro strategist at VTB Capital.

The speculation that Deutsche Bank will be looking to raise money comes just ahead of the publication of a report by the Bank of International Settlements that is likely to compel banks to hold more capital in reserve than they currently do.

The expectation is that the BIS will require banks to have a capital ratio of at least 7 percent. While most banks' capital ratios are well above that, it does represent a marked increase on the capital requirements before the financial crisis.

The new capital rules will also affect U.S. banks but they have raised far more cash in the markets over the past couple of years than their counterparts in the EU.

Wall Street is poised to open modestly higher later -- Dow futures were up 10 points, or 0.1 percent, to 10,348 while the broader Standard & Poor's 500 futures rose 3 points, or 0.3 percent, to 1,100.60.

On Thursday, U.S. stocks ended modestly higher after strong jobs and trade data eased fears that the world's largest economy might slip back into recession.

"Some good news in the U.S. finally, in the form of a narrower trade deficit and lower initial jobless claims, have helped to provide a counterpoint to the generally pessimistic mood prevailing," said Daragh Maher, an analyst at Credit Agricole. "But we are still in a market that is reactive rather than proactive, looking at the latest nugget of news for inspiration rather than establishing any positions with real long-term conviction."

Earlier in Asia, stocks generally advanced after Japan said its economy grew more than estimated in the second quarter of the year and Thursday's advance in Europe and the U.S.

The Shanghai Composite Index rose 0.3 percent to 2,663.21 while Hong Kong's Hang Seng Index rose 0.4 percent to 21,257.39.

Japan's Nikkei 225 stock average closed up 1.6 percent at 9,239.17 after slipping back from the morning's 2 percent rise. Investors welcomed figures showing that improved capital spending helped Japan's economy grow 0.4 percent in the second quarter from the previous quarter, compared with an initial estimate of 0.1 percent.

In the currency markets, the focus once again remained firmly on the value of the yen, which struck a fresh 15-year high against the dollar on Wednesday.

By mid morning London time, the dollar was up 0.1 percent at 83.91 yen, compared with Wednesday's low of 83.35 yen.

Meanwhile, the euro was 0.3 percent higher at $1.2728.

Benchmark crude for October delivery was up $1.44 at $75.69 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 42 cents to settle at $74.25 a barrel on Thursday.

[Associated Press; By PAN PYLAS]

AP Business Writer Erike Kinetz in Mumbai, India contributed to this report.

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