Stocks down as traders focus on interest rates

[May 03, 2011]  LONDON (AP) -- Global stocks eased lower Tuesday as investors turned their attention toward a raft of economic news over the coming days and India's central bank lifted interest rates to keep a lid on inflation.

The retreat in markets confirmed that any euphoria surrounding the death of Osama bin Laden has run its course, with investors far more interested in the state of the global economic recovery and the outlook for interest rates.

"The markets appear to be looking beyond this (bin Laden's death) and worries about index levels and the economic recovery are moving to centre stage," said Andrew Sykes, a trader at Spreadex.

In Europe, the FTSE 100 index of leading British shares was down 0.1 percent at 6,066 while Germany's DAX fell 0.9 percent to 7,456. The CAC-40 in France was 0.8 percent lower at 4,077.

Wall Street was poised for a lower opening following Monday's modest declines -- Dow futures were down 0.3 percent at 12,721 while the broader Standard & Poor's 500 futures fell 0.4 percent to 1,352.

This week has a heavy schedule of economic indicators that could have a huge bearing on all types of markets, culminating Friday with the April nonfarm payrolls data from the U.S. government. That often sets the tone in markets for a week or two.

Before Friday's payrolls data, there will be a raft of economic news that could influence expectations of the jobs figures.

In Europe, investors will be keeping a close watch on interest rate decisions from the European Central Bank and the Bank of England. Neither is expected to change interest rates, though the ECB is expected to indicate Thursday that it will follow April's first interest rate increase in nearly three years with another rise in June.

That belief has bolstered the euro currency over the past couple of months despite ongoing debt problems, most notably in Greece, Ireland and Portugal. While the ECB is poised to raise interest rates again in the coming months, the U.S. Federal Reserve has shown few signs it's ready to lift its super-low interest rates. That's added to the dollar's recent weakness against the euro.

"The ECB rate hike last month contrasts with the dovish stance of the Fed while rising interest rate differentials have been a key reason underpinning the gains in the euro/dollar exchange rate in the last few months," said Neil MacKinnon, global macro strategist at VTB Capital.

By late morning London time, the euro was down 0.2 percent at $1.4774 -- just off Monday's near 18-month high of $1.4902. Meanwhile, the dollar was 0.3 percent lower at 80.99 yen.

Interest rates were in focus in Asia earlier after India's central bank raised its key interest rate by half a percentage point, warning that persistent inflation has become a threat to growth in Asia's third-largest economy.

India's reserve bank, which has raised borrowing costs nine times in just over a year, warned that economic growth would slow to about 8 percent this year while inflation would remain close to 9 percent for the first half of the fiscal year.

Unsurprisingly India's Sensex fell 2.4 percent.

Bucking the trend in Asia, mainland Chinese shares rose after markets reopened following Monday's May Day holiday.

Investors took heart as authorities refrained from announcing any new inflation-fighting measures over the long weekend, as many had expected. Authorities have used recent holidays to announce interest rate hikes.

The Shanghai Composite Index gained 0.7 percent to close at 2,932.19, while the Shenzhen Composite Index rose 1.1 percent to end at 1,214.12.

In Australia, a widely expected decision by the central bank to hold its key interest rate at 4.75 percent failed to boost stocks as Reserve Bank of Australia Governor Glenn Stevens warned that recent flooding and a cyclone was likely to have shrunk the Australian economy during the three months through March this year.

Australia's main S&P/ASX 200 fell 0.8 percent to close at 4,784.60.

Elsewhere in Asia, South Korea's Kospi tumbled 1.3 percent to close at 2,200.73 while Hong Kong's Hang Seng Index fell 0.4 percent to end at 23,633.25

Benchmark oil for June delivery fell $1.19 to $112.33 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 41 cents to settle at $113.52 on Monday.

[Associated Press; By PAN PYLAS]

Kelvin Chan in Hong Kong contributed to this report.

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