European stocks up on Fed hopes but Asia slides

[August 24, 2011]  BRUSSELS (AP) -- European stocks held on to small gains Wednesday, shrugging off a credit downgrade of Japan that weighed on Asian markets, as investors hoped that the Federal Reserve will this week announce more stimulus for the U.S. economy.

Markets are expected to fluctuate ahead of Friday's speech by Fed Chairman Ben Bernanke at an economics conference in Jackson Hole, Wyo.

Hopes that Bernanke will signal new action to kick start the struggling U.S. economy helped lift most major markets Monday and Tuesday, in spite of disappointing indicators on both sides of the Atlantic, and appeared to persevere in morning trading in Europe.

Britain's FTSE 100 rose 0.4 percent to 5,148. Germany's DAX was 1.1 percent higher at 5,590 and France's CAC-40 rose 1 percent to 3,114.

Wall Street, however, appeared to be headed lower, after recording big gains Tuesday. Dow Jones industrial futures and S&P 500 futures were down 0.8 percent at 11,075 and 1,152 respectively.

That followed losses on most major Asian markets, as well as declining oil prices, underlining investors' reluctance to commit to assets that could quickly lose value if the global economy heads for another downturn.

"If Bernanke does not pull a rabbit out of the hat at Jackson Hole on Friday risk trades could look vulnerable once again," warned analysts at Credit Agricole.

Fresh data out of the eurozone indicated that businesses are already preparing for potential troubles.

Germany's closely watched Ifo index of business optimism for fell more than expected in another negative signal about Europe's largest economy. The index fell to 108.7 for August from 112.9 in July. Market analysts had expected a smaller drop to 111.0.

"August's drop in Ifo business confidence adds to the growing evidence that the German economic recovery has faltered," analysts at Capital Economics wrote in a note, adding that a slowdown for the eurozone's growth engine is set to hurt other members of the currency union that are still fighting to pull themselves out of crisis.

In Asia, Japan's Nikkei 225 index fell 1.1 percent to close at 8,639.61 after opening higher early Wednesday.

Sentiment was dented after Moody's Investors Service downgraded Japan's credit rating to Aa3 from Aa2, citing weak growth prospects for the world's No. 3 economy, massive government debt and constant political uncertainty. The new rating is three notches below Moody's top Aaa rating.

The downgrade, which puts Moody's rating in line with other major credit rating agencies, is the latest blow for Japan after its economy remained mired in recession in the second quarter due to tumbling factory production and exports following the March 11 earthquake and tsunami.

South Korea's Kospi dropped 1.2 percent to 1,754.78. Hong Kong's Hang Seng tumbled 2.1 percent to 19,466.79.

Australia's S&P/ASX 200 fell 0.1 percent to 4,167.60 after spending much of the session in positive territory. Markets in Singapore, Taiwan and Indonesia also fell.

Mainland Chinese shares were mixed with the benchmark Shanghai Composite Index falling 0.5 percent to 2,541.09 while the Shenzhen Composite Index edged 0.1 percent higher to 1,144.74.

In commodities markets, benchmark oil for October delivery was down 16 cents to $85.28 a barrel in electronic trading on the New York Mercantile Exchange. In London, Brent crude for October delivery fell 27 cents to $109.04 on the ICE Futures exchange.

The euro rose, meanwhile, to $1.444 from $1.442 in late trading Tuesday in New York. The dollar fell to 76.54 yen from 76.66 yen.

[Associated Press; By GABRIELE STEINHAUSER]

Pamela Sampson in Bangkok contributed to this story.

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