European markets up despite Asian jitters

European markets up despite Asian jitters

London: European stock markets rose modestly on Wednesday ahead of a key policy statement from the US Federal Reserve, despite jitters earlier in Asia after Wall Street suffered its biggest reverse in five weeks.

The FTSE 100 index of leading British shares was up 21.38 points, or 0.5%, at 4,692.72 while Germany’s DAX rose 24.46 points, or 0.5%, at 5,310.27. The CAC-40 in France was 8.73 points, or 0.3%, higher at 3,464.91.

The gains in Europe came despite big losses in Asia, where investors were spooked by Tuesday’s losses on Wall Street.

Chinese shares were the worst hit after the Dow Jones industrial average and the broader Standard & Poor’s 500 index closed down over 1% to 9,241.45 and 994.35 respectively.

Analysts said it was important to keep things in proportion especially as trading volumes are particularly light at the moment, low volumes often lead to greater volatility.

“It’s important to remember that the Dow is up over 40% in five months so it’s only natural to have pullbacks but if we are to see the index break through the 10,000 barrier, there needs to be more signs of economic recovery," said Ian Horsley, a financial trader at Spreadex.

Signs of economic recovery were thin on the ground on Wednesday. Figures showed the British unemployment rate at a 14-year high of 7.8% in June and industrial production in the 16 countries that use the euro falling unexpectedly in June.

This leaves the focus in the markets on the Fed’s policy statement when it concludes its two-day meeting later.

It is widely expected that the US central bank will hold interest rates steady at near zero when it ends its meeting. However, investors will be looking to see if the Fed sounds a note of cautious optimism in its accompanying statement and whether it has plans to expand its asset-purchasing program now that funds are running dry.

Hopes that the US economy will recover sooner than anticipated from its deepest recession since World War 2 has helped stocks around the world rally hard over the last month or so, sending major indexes to 2009 highs. Stocks usually rally around six months before actual recovery emerges in the official data.

With recent gains so sizable, analysts said profit-taking could emerge continue during the US session.

“Stockmarkets look fragile and some further pullback could continue in the near term," said Neil Mackinnon, chief economist at ECU Group.

Futures markets were predicting a modest recovery when Wall Street opens later. Dow futures were up 15 points, or 0.2%, at 9,231 while the S&P 500 futures rose 1.2 point, or 0.1%, to 994.10.

Earlier in Asia, Tokyo’s Nikkei 225 stock average, retreated from a 10-month high, losing 150.46 points, or 1.4%, to close at 10,435.00.

Financial stocks came under pressure after influential banking analyst Richard Bove of Rochdale Securities wrote in a research note that bank earnings won’t improve in the second half of this year and that many companies will post losses.

“His report came in just as investors were looking for leads to sell shares," said Masatoshi Sato, market analyst at Mizuho Investors Securities Co. in Tokyo.

Hong Kong’s Hang Seng Index fell 638.97, or 3%, to 20,435.24 on heavy selling of shares in big mainland Chinese companies and weakness in mainland-traded shares, while Shanghai’s Shanghai’s main composite index tumbled 4.7% to 3,112.72.

Australia’s benchmark S&P/ASX 200 index edged up 0.3% to 4,343.10, but shares fell in South Korea, Taiwan and the Philippines.

US stock index futures turned lower, with Dow futures down 12 points, or 0.1%, to 9,204.

Oil prices fell modestly towards $69 a barrel on Wednesday after the US Energy Department’s Energy Information Administration said global demand for crude would improve only gradually as economies struggle to emerge from recession.

Benchmark crude for September delivery was down 20 cents to $69.25 a barrel by noon European electronic trading on the New York Mercantile Exchange. On Tuesday, the contract fell $1.15 to settle at $69.45.

In currency dealings, the dollar was steady at 95.92 yen while the euro was unchanged at $1.4150.