European stocks fall on weak growth outlook

[June 08, 2010]  (AP) -- European stocks fell Tuesday, as investors worried that growth would be hurt by the region's sprawling debt crisis and spending cuts. Comments by Federal Reserve Chairman Ben Bernanke, who indicated the U.S. recovery was on track, helped Asian indexes close higher, though the momentum was short-lived.

The UK's FTSE 100 was down 1.37 percent to 4,999.82 points, while Germany's DAX 20 dropped 1.36 percent 5,824.72 and France's CAC-40 lost 1.70 percent to 3,357.72. The euro fell to $1.908 against the U.S. dollar, near a four-year low.

European Union countries on Tuesday agreed on ways to toughen oversight of how governments run their economies in a bid to regain credibility with markets and prevent a repeat of the debt crisis afflicting the region.

EU Economy Commissioner Olli Rehn told reporters he expected the 27-nation bloc would move "fast forward on reinforcing economic governance," a day after most agreed on tougher sanctions for debt and deficit limits for member-countries.

The absence of good news and more announcements of spending cuts from big countries like Germany and Britain helped keep investor sentiment gloomy.

"In a week where there is no obvious source of good news, things may once again end up worse than many thought," Daragh Maher from Credit Agricole said in a morning note to investors.

European markets on Tuesday will be keep an eye on Hungary, the last country to be in the spotlight of the debt crisis, where the prime minister is expected to outline details of its fiscal plan to battle the growing crisis.

Wall Street is expected to show mixed results on on the open later. Dow futures were up by 16 points to 9,810.00. The broader Standard & Poors 500 futures lost 2.1 points, to 1,045.90.

Asian indexes closed higher, with Japan's Nikkei 225 stock ending the day up by 17.14, or 0.2 percent, to 9,537.94 following a nearly 4 percent plunge Monday. Exporters benefited after the euro recovered slightly from an 8 1/2-year low against the yen Monday.

Hong Kong's Hang Seng edged up 109.33, or 0.6 percent, to 19,487.48, and Australia's ASX/S&P 200 climbed 1.3 percent to 4,381.2.

Benchmarks in mainland China, South Korea, and Singapore also advanced. Shares in Taiwan and New Zealand, where the market was closed Monday for a holiday, were in negative territory.

Asian stocks were supported by Bernanke's remarks Monday night, saying he is hopeful the world's No. 1 economy will gain traction and not fall back into a "double dip" recession.

He added, however, that he expects a continued recovery, but "it won't feel terrific."

The U.S. economy grew at a 3 percent pace in the first quarter of this year. But coming out of such a deep recession, the economy must grow much more strongly to make a dent in the high unemployment rate.

"Confidence has not yet returned, but I think fear has subsided," said Francis Lun, general manager of Fulbright Securities in Hong Kong. "I think Asian markets have recovered from the shock of the European crisis, so investors started buying again."

On Wall Street Monday, the Dow Jones industrial average lost 1.2 percent to 9,816.49, its lowest finish since November. The S&P 500 index fell 1.4 percent.

The dollar, meanwhile, rose to 91.72 yen from 91.40 yen late Monday.

Benchmark crude for July delivery was down 42 cents to $71.02 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 7 cents to settle at $71.44 on Monday.

[Associated Press; By NATALIYA VASILYEVA]

Associated Press writer Pamela Sampson contributed to this report from Bangkok.

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