European markets eke out gains but Italy lags

[December 27, 2011]  PARIS (AP) -- European shares eked out modest gains Tuesday despite an earlier retreat in Asia, amid hopes of a solid Christmas trading period around the world, but Italian shares dipped as the country's key borrowing rate ratcheted up to worrisome levels.

Indicators out of the U.S., which can drive market sentiment the world over, have been stronger than expected, and there have been signs in Europe too of a solid trading. However, with the debt crisis in Europe still raging and growth expected to slow in China, investors have plenty to worry about.

A run of strong data from the U.S. ahead of the long holiday weekend had buoyed investors around the world but particularly on Wall Street -- the Dow Jones index closed last Friday at a five-month high last Friday.

In Europe, stock markets have recovered some ground of late too but most are still down on the year.

On Tuesday, France's CAC-40 rose 0.3 percent to 3,110 while Germany's DAX was up 0.2 percent at 5,891. The FTSE index of Britain's leading shares remained closed.

One market bucking the trend was Italy's FTSE MIB, which was trading 0.5 percent lower as the yield on the country's ten-year bonds struck 7 percent once again -- a level that is considered unsustainable in the long-run and eventually forced Greece, Ireland and Portugal into seeking outside financial help.

Italy is the eurozone's third-largest economy and is considered to be too big to save under current bailout facilities. Mario Monti, the coauntry's new premier got Parliamentary approval last week for a big austerity package that is intended to save the country from financial disaster.

Markets have grown increasingly fearful over the past few months that Italy will find it difficult to pay off its massive debts, which stand at around euro1.9 trillion ($2.5 trillion).

Despite ongoing worries over the spread of Europe's debt crisis to Italy, the euro remained relatively well-supported, trading 0.1 percent higher too at $1.3070.

Ahead of Wall Street's open, Dow futures were flat at 12,222 while S&P futures were also broadly unchanged at 1,260.

The narrow ranges across stock markets reflect light holiday trading conditions. Markets in Europe and the U.S. were closed Monday and trading is expected to be light most of this week though there could be some year-end movements on Friday as investors look to lock in any gains they may have made.

Earlier in the day, Asian shares fell after a disappointing profit performance by Chinese companies and a warning that Japan faces "significant downside risks" due to Europe's debt problems. That warning came from a Finance Ministry representative at a November Bank of Japan meeting, the bank said Tuesday.

Tokyo lost 0.5 percent to 8,440.56 while Seoul's Kospi shed 0.8 percent to 1,842.02. Taipei, Singapore and Jakarta also declined. Hong Kong and Sydney were closed.

China's benchmark Shanghai index dropped nearly 1.1 percent to 2,166.21 after the country's government reported that profit growth slowed at its major industrial companies. Total profit in the January-November period rose 24.4 percent over a year earlier, down 0.9 percent from the growth rate for the first 10 months of the year.

Oil markets were fairly subdued -- benchmark crude for February delivery was up 29 cents at $99.97 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press; By SARAH DiLORENZO]

AP Business Writer Joe McDonald contributed to this report from Beijing.

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