London: European stocks shrugged off sharp drops on Asian markets on Wednesday after a steep drop on Wall Street overnight fanned investors’ fears that the US economy was sliding into a recession that would sap demand for Asian exports.
US futures also rose ahead of the start of trading in New York. In Europe, stocks were up modestly. In the UK, the benchmark FTSE 100 index rose 0.1% to 5,873.5, while Germany’s DAX climbed 0.3% to 6,782.91. France’s CAC gained 0.5% to 4,799.2, helped by a strong earnings report by France Telecom SA.
In Asia, investors dumped shares after figures released on Tuesday showed that the US services sector shrank last month for the first time since March 2003. That wiped out some renewed confidence about the American economy after the US Federal Reserve’s two big rate cuts late last month.
“It’s unbridled pessimism,” said Francis Lun, general manager at Fulbright Securities Ltd in Hong Kong, of the Asian markets.
In Hong Kong, the benchmark Hang Seng index plunged 1,339.24 points, or 5.4%, to close the half-day session at 23,469.46. Japan’s Nikkei 225 tumbled 4.7% to 13,099.24. Global financial markets have been turbulent since the start of the year on worries about a US recession and a worldwide slowdown, and massive losses racked up by banks that made bad bets on securities backed by risky mortgages.
While the Fed’s rate cuts lifted many markets last week, investor confidence evaporated after the Tempe, Arizona-based Institute for Supply Management reported that its December index of activity in the US services sector, which accounts for about two-thirds of the economy there, dropped below 50, indicating contraction. The Dow Jones Industrial Average plunged 2.93%—its largest one-day percentage drop since 27 February.
Early on Wednesday, Standard and Poor’s (S&P) 500 futures rose 4.1 points to 1,347.30 and Nasdaq 100 futures added 2.5 points to 1,787.50, while Dow Jones Industrial futures added 29 points.
The financial industry, already reeling from losses linked to the credit crisis, was dealt another blow last month when major French bank Societe Generale said it had lost €4.8 billion (Rs27,840 crore) in cleaning up unauthorized transactions by a rogue trader.
Elsewhere in the Asia-Pacific, Australia’s key index fell 3.2%, while India’s Sensex dropped nearly 3%. Thailand’s market slid 1.6%. Some traders said Wednesday’s decline in Hong Kong was overdone and largely driven by investors keen to avoid risky exposure during the long Lunar New Year holidays. Markets in Hong Kong and Singapore were closed on Wednesday afternoon and would remain shut Thursday and Friday.
Malcolm Foster in Bangkok contributed to this story.