Stocks weighed down by oil price fears

[April 11, 2011]  LONDON (AP) -- Stocks mostly fell Monday as investors fretted about soaring oil prices and China's first quarterly trade deficit in seven years. Another strong earthquake in Japan, which sparked a fresh tsunami alert, helped keep tensions high.

Though investors will this week monitor geopolitical concerns related to Libya's conflict and Japan's struggle to recover from last month's devastating natural disasters, they will also be watching the start of the quarterly corporate earnings season.

As usual, Alcoa Aluminum kicks the earnings season off late Monday, and following a strong run of outperforming market expectations, hopes are high. That means the scope for disappointment has risen. Other big corporations due to report include JP Morgan Chase & Co., Bank of America Corp. and Google Inc.

In addition, inflation figures will take center stage, with the U.S., Britain, the eurozone and China all set to report numbers for March. They are expected to show that price pressures remain elevated, partly because energy and commodity costs continue to rise for a variety of reasons, not least the battle for control of Libya, an OPEC member.

"Inflation was a key theme last week with respect to central bank rate decisions and it will continue to remain a key theme this week," said Michael Hewson, market analyst at CMC Markets.

There's a raft of other economic data this week, including U.S. retail sales and industrial production figures and China's first estimate for economic growth in the first quarter of the year.

Expectations of the latter may be negatively affected by the news that China posted a trade deficit in the first three months of the year, its first since 2004. Higher commodity and energy costs as well as the country's insatiable demand for raw materials were the main reasons behind the deficit.

Oil prices are key in assessments of the global economy. Not only are they stoking inflationary pressures and heightening expectations that the world's leading central banks will be raising interest rates from super-low levels sooner than anticipated, but they are also weighing on economic activity.

As a result, traders are keeping a close watch on developments in the oil markets, especially after a week when they struck fresh 30-month highs almost daily.

In late morning trading London time, the benchmark contract as traded on the New York Mercantile Exchange remained elevated despite a modest 39 cents a barrel decline to $112.40.

This backdrop of news and scheduled events has weighed on stock markets. Any initial optimism dissipated when a 7.1-magnitude aftershock hit Japan on the month anniversary of the earthquake and tsunami that devastated the northeastern coast and unleashed a still-unfolding nuclear crisis. The quake struck after Asian markets had closed.

In Europe, the FTSE 100 index of leading British shares was down a little over a point to 6,055.06 while Germany's DAX fell 0.6 percent to 7,175. The CAC-40 in France was 0.7 percent lower at 4,032.

U.S. stocks were poised for a fairly flat performance at the open following Friday's retreat -- Dow futures were up 11 points at 12,337 while the broader Standard & Poor's 500 futures rose around a point to 1,325.

Earlier in Asia, Japan's Nikkei 225 stock average dipped 0.5 percent to close at 9,719.70, while South Korea's Kospi edged down 0.3 percent to end at 2,122.39. Hong Kong's Hang Seng index slid 0.4 percent to finish at 24,303.07. Benchmarks in mainland China, Taiwan, Singapore and India also fell.

Trading in the currency markets was fairly lackluster ahead of the main chunk of this week's economic news.

The euro was flat at $1.4461, not far off last week's 15-month high of $1.4489, while the dollar was 0.5 percent lower at 84.59 yen.

Europe's single currency has been heavily in demand over the past few weeks as the European Central Bank sounded a far more hawkish tone following above-target inflation figures. Last week, the ECB raised its main interest rate by a quarter of a percentage point to 1.25 percent. The markets expect further rate hikes this year.

Those expectations support the euro only if other central banks don't do the same. So far, the U.S. Federal Reserve has given few indications that it's about to follow the ECB anytime soon, while the Bank of Japan is keeping policy loose to help the country in the wake of the disasters.

[Associated Press; By PAN PYLAS]

Kelvin Chan in Hong Kong contributed to this report.

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