Markets cautious ahead of Merkel, Sarkozy meeting

[January 09, 2012]  LONDON (AP) -- European markets were steady Monday ahead of a meeting between the leaders of France and Germany on how to restore confidence in the euro, while Chinese shares surged after the country's monetary authorities pledged to increase bank lending to entrepreneurs.

Investors will likely focus this week on Europe's efforts to deal with its debt market turmoil. The meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel is their first of the year and investors will want to see how the "fiscal compact" agreed in December is being fleshed out.

All EU countries but Britain agreed at the time to consider a new treaty to enforce tougher budget controls by March this year.

"This is set to be the first of a number of meetings between the two leaders over the coming days and weeks, and markets will be hoping that the one eyed insistence on budget discipline by Angela Merkel also gives way to looking at practical measures to stimulate growth in Europe," said Michael Hewson, markets analyst at CMC Markets.

Mounting evidence that the eurozone is heading for a recession has weighed on European markets over the past days. On Monday, the latest data showed German industrial production fell in November, suggesting even the richer countries are feeling the pinch.

Fears of default have already pushed Greece, Ireland and Portugal to need bailouts are now threatening much-bigger Spain and Italy. The yield on Italy's benchmark ten-year bonds on Monday continued to hover around the 7 percent mark, widely considered to be unsustainable in the long-run.

After a perky start to the year, market sentiment has deteriorated again due to concerns about Europe's ability to solve its debt problems.

On Monday, Germany's DAX was down 0.2 percent at 6,044 while the CAC-40 in France rose 0.2 percent to 3,142. The FTSE 100 index of leading British shares was flat at 5,649.

The euro, which last week took a battering on fears over both the debt crisis and the likelihood that the eurozone economy is heading toward recession, recovered some ground, trading 0.8 percent higher at $1.2780. Earlier, during Asian trading hours, it had fallen to a 16-month low of $1.2676.

Wall Street was poised for a subdued opening after a lackluster response to strong U.S. jobs numbers last Friday. Dow futures were up 0.1 percent at 12,319 while the broader Standard & Poor's 500 futures were flat at 1,274.

Earlier in Asia, Chinese shares in Hong Kong and the mainland jumped sharply following a weekend government planning conference during which Premier Wen Jiabao promised to channel lending to entrepreneurs who have been battered by weak global demand.

China tightened lending and investment curbs last year to cool its overheated economy but has reversed course in recent months following a slump in global demand that has hurt exporters and led to job losses.

Hong Kong's Hang Seng index jumped 1.5 percent at 18,865.72. The benchmark Shanghai Composite Index gained 2.9 percent to 2,225.89, while the Shenzhen Composite Index gained 3.7 percent. Elsewhere, South Korea's Kospi fell 0.9 percent to 1,826.49. In Japan, financial markets were closed for a public holiday.

Trading in the oil markets was fairly subdued, with benchmark crude for February delivery down 36 cents at $101.23 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

Pamela Sampson in Bangkok contributed to this report.

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