London: European stock markets rose on Wednesday as the recent pickup in investor confidence continued to prevail despite a lackluster performance in Asia earlier following the news that Japan’s economy contracted at its fastest rate since records began in 1955.
The FTSE 100 index of leading British shares was up 1.02 point, or 0.02%, at 4,483.27, while Germany’s DAX was up 31.88 points, or 0.6%, at 4,991.50. The CAC-40 in France rose 13.95 points, or 0.4%, at 3,288.91.
The gains in Europe were modest compared with its previous session when banking stocks rode on the coattails of their counterparts in the US to help the markets post big gains, the DAX for example ended more than 2% higher.
American banks are seemingly finding it fairly easy to raise the capital required of them by the regulatory authorities. Bank of America Corp. confirmed on Tuesday that it has raised around $13.5 billion.
David Buik, markets analyst at BGC Partners, said financial stocks may be “close to their temporary zenith” unless US Treasury secretary Tim Geithner reassures lawmakers in Congress later that the banking recovery is “going swimmingly.”
Earlier, Asian markets were mixed with Japan’s Nikkei 225 stock average edging up 54.35 points, or 0.6%, at the close to 9,344.64, but Hong Kong’s Hang Seng ending down 68.19 points, or 0.4%, to 17,475.84.
Japan’s gains came despite confirmation that the economy, the world’s second biggest, shrank at an annual rate of 15.2% as exports plunged and companies slashed production.
Analysts said markets could meander in the short term after rallying the couple months, with some major indexes turning positive for the year. The Standard & Poor’s 500 index in the US has risen around 30% from its lows.
The trigger for the gains over the last couple of months has been some better than expected economic news around the world, particularly from the US. However, fairly downbeat US retail sales data last week reined in some of the hopes of the more optimistic members of the investing community and stocks have since generally traded sideways.
Analysts said it has been noticeable that any corrections seen since the rally began in mid-March have been relatively mild, suggesting that there are still enough investors out there willing to buy into dips.
Philip Manduca, head of investment at ECU Group, reckons the S&P will overshoot to the upside, possibly up to 950 before the summer ends “as euphoria accentuates and the TV channels trumpet a new bull market.”
However, Manduca thinks the S&P will end the year near its fair value of closer to 750 to 850 “but not before all the bears get heavily squeezed into taking a loss and the new bulls get caught at the top.”
At the US open later, futures markets were showing that the US stocks were ready to claw back their modest losses on Tuesday. Dow futures were up 32 points, or 0.4%, at 8,481 while the S&P 500 futures rose 4 points, or 0.4%, at 910.50.
Elsewhere in Asia, South Korea’s market added 0.5% to 1,435.70 while Shanghai’s index declined 0.9%. India’s market shed nearly 2% after soaring earlier this week after national elections settled the country’s near-term political future. Markets in Taiwan, Australia and Singapore were marginally higher.
Broader stock indicators were mixed. The Standard & Poor’s 500 index fell 1.58, or 0.2%, to 908.13.
Oil prices hovered above $60 a barrel on Wednesday, with benchmark crude for July delivery up 54 cents to $60.64 a barrel. On Tuesday, the contract rose 51 cents to settle at $60.10.
The dollar recovered some ground to trade slightly down at 95.90 yen from 96.09 yen. The euro was a touch lower at $1.3643 from $1.3645 earlier.