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 European shares were still on track to post a sharp weekly loss as
investors reassess stretched valuations for global equities amid a
slower-than-expected pace of economic recovery in the euro zone.
The pan-European FTSEurofirst 300 index opened 0.4 percent higher,
buoyed by gains across the region. Portugal's PSI 20 index was up
1.5 percent after its biggest lender Banco Espirito Santo reassured
investors overnight over financial troubles at its biggest
shareholder.
Espirito Santo had plunged 19 percent on Thursday before trading was
halted, sending ripples across Europe, U.S. and Asia trading and
bucking a months-long trend of low volatility and positive sentiment
for stock markets driven by steady monetary support from major
central banks.
"The market is very confused at the moment with people not sure
about the strength of the economic recovery and worries about
structural issues that have not been resolved," Lex Van Dam, a hedge
fund manager at Hampstead Capital, said.
Fixed income markets were cautious, with German bund futures trading
flat. Peripheral euro zone bonds, a recent winner for return-hungry
investors, saw yields track lower after a sharp rise on Thursday,
with Portuguese 10-year yields dropping 10 basis points to 3.91
percent.
"After the huge rally behind us in non-core bonds as well as
equities we've had a multitude of bad news...The market clearly
needed a trigger for profit-taking and that's what happened," said
Jan von Gerich, chief fixed income analyst at Nordea.
"It's a reminder that volatility is not dead and that not all the
banking sector issues have been resolved."
Forex markets were largely steady, with the dollar also flat against
a basket of six major currencies.
EMERGING CAUTION
In the U.K., shares were buoyed by merger hopes, with Imperial
Tobacco up 2.9 percent after saying it was in talks with Reynolds
and Lorillard to acquire certain assets and brands that could be
sold by the two companies.
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Moves in Asia had been generally modest with share markets mixed.
Hong Kong, South Korea, Taiwan and the Philippines lost ground but
China, Singapore and Australia eked out gains.
The MSCI Emerging Market index was down 0.4 percent, with emerging
stocks set for the biggest weekly loss since the end of May and
Indian shares headed for their biggest weekly loss since the end of
January.
MSCI's broadest index of Asia-Pacific shares outside Japan dipped
0.3 percent, while Japan's Nikkei pared losses to end off 0.3
percent.
Investors had been encouraged by signs that funds were taking money
out of peripheral euro zone debt and seeking higher returns in the
emerging world. MSCI's index of emerging market stocks actually rose
on Thursday having hit a 17-month peak earlier in the week.
As tensions in the Middle East simmered, Brent crude oil was off 63
cents at $108.04 a barrel, while U.S. crude lost 50 cents to
$102.43.
(Additional reporting by Patrick Graham, Emelia Sithole-Matarise and
Tricia Wright; editing by John Stonestreet)
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