World stocks mixed as China stimulus hopes fade

[March 05, 2009]  LONDON (AP) -- European markets dropped Thursday after the previous session's strong rally, as investors turned cautious ahead of key interest rate decisions later in the day by the European Central Bank and the Bank of England.

By noon in mainland Europe, Britain's FTSE 100 lost 1.7 percent at 3,583.01, Germany's DAX dived 1.8 percent at 3,822.25, and France's CAC 40 tumbled 1.3 percent to 2,640.19.

Europe's two leading central banks are expected to cut interest rates, but with the scope for further reductions limited, speculation is growing that the European Central Bank and the Bank of England will effectively start printing money to give their ailing economies a kick start.

Amid increasingly grim economic news, the European and British central banks are likely to cut their benchmark rates by a half percentage point to new record lows of 1.5 percent and 0.5 percent.

However, markets will be keeping a close eye on statements released alongside the rate announcements on more radical steps such as so-called quantitative easing -- a technical term that describes ways to expand the supply of money in the economy.

"The market's treading water before the rate decisions later today, because it's not wholly decided what's going to happen, how aggressive the Bank of England is going to be and there's a lot of unanswered questions about quantitative easing, which is leaving investors uncertain," said James Hughes, market analyst at CMC Markets in London.

He added that the ECB's anticipated "more aggressive" decision was likely to have an even stronger effect on markets. "Over the last few days or so the DAX and CAC have been a little bit slower to react to the downside, but today we're not seeing that, we're seeing the same pretty much across the board," said Hughes.

In other trading news, shares in Aviva PLC fell 21 percent in London after Europe's biggest provider of life insurance and pensions products booked a net loss for 2008, due to a drop in the value of assets amid the financial crisis.

In Asia, stock markets were mixed after China promised to support growth and create jobs -- but stopped short of major new stimulus measures to bolster the world's third-largest economy.

Chinese Premier Wen Jiabao said the government's 4 trillion yuan ($586 billion) stimulus plan, announced in November, would help the country achieve 8 percent growth this year. That rate is seen as critical to creating jobs and staving off social unrest as the worst global economic crisis in generations hits Chinese exports.

As the government boosts money for infrastructure, social programs and tax cuts, the country's budget deficit will surge to its highest level in six decades, Wen said at China's annual legislative session in Beijing.

Global markets had rallied along with commodities prices the day before, partly on hopes China would announce new steps to counter a slowdown in its economy and help other countries restart theirs in the process.

But some investors turned cautious after Beijing largely reinforced programs and spending already known.

The program outlined in Wen's nationally televised speech, while supplying a short-term jolt to confidence with its reiteration of the 8 percent growth target, was unlikely to bring about a lasting recovery in global markets, analysts said. With Western economies and the global financial system still in tatters, any spillover effects from China would be limited.

"Knowing China will be spending is comforting, but we have doubts whether this will help other countries' economies in the end," said Kelvin Lau, a regional economist at Standard Chartered Bank in Hong Kong.

Japan's Nikkei 225 stock average rose 142.53 points, or 2 percent, to 7,433.49 while South Korea's Kospi ended down 0.1 percent at 1,058.18 in a choppy session.

In China, Shanghai's benchmark gained 1 percent to 2,221.08 after jumping more than 6 percent the day before. Prices were initially down after Wen's speech, but rebounded on reports of a rise in bank lending and speculation a tax on stock trading might be cut.

Hong Kong's Hang Seng lost 118.76 points, or about 1 percent, to 12,212.39. Benchmarks in Australia and Taiwan gained while Singapore and Indian stock measures fell.

U.S. futures pointed to a lower open on Wall Street. Dow futures were down 1.3 percent at 6,773 and Standard & Poor's 500 futures were off 1.2 percent at 700.90.

Overnight, Wall Street snapped a five-day losing streak, buoyed by China stimulus hopes as well as details of a Washington program to help as many as 9 million borrowers stay in their homes through refinanced mortgages or loans.

The Dow Jones industrial average rose 149.82, or 2.2 percent, to 6,875.84, and the Standard & Poor's 500 index added 16.54, or 2.4 percent, to 712.87.

Investors are likely to pay close attention to Friday's release of U.S. employment figures, a key barometer of the world's largest economy.

After soaring overnight, oil prices slipped in European trade, with benchmark crude for April delivery off $1.08 at $44.30 a barrel. Prices jumped $3.73, or about 9 percent, on Wednesday to settle at $45.38.

[Associated Press; By LOUISE WATT]

AP Business Writer Jeremiah Marquez contributed to this report from Hong Kong.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed