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European Stocks Down As Global Economic Worries Continue

 
   By Andrea Tryphonides 
   Of DOW JONES NEWSWIRES 
 

European stocks dipped Tuesday, as concerns regarding the general health of global economies and fears emanating out of Asia regarding the bank sector hit sentiment, prompting a decline in oil and gold prices while giving less-risky asset classes a boost.

The slide in European shares followed a decline in Chinese stocks. The country's banking regulator warned about the strength of capital positions, prompting concerns that lenders may have to sell shares to raise capital. In the U.S., selling continued, albeit more mutedly than in Asia or Europe. In midday trading, the Dow Jones Industrial Average was off 0.5% at 10398.

On Wednesday, trading volume is expected to diminish ahead of the U.S. Thanksgiving holiday on Thursday. A cavalcade of U.S. data will greet the session, including weekly jobless claims, durable goods orders, consumer sentiment and new home sales. Elsewhere, the U.K. will release revised third-quarter growth figures and Japan will release provisional trade for the first part of November.

Tuesday in Europe, banking woes included news that state-controlled WestLB is negotiating with the German government about off-loading assets from its balance sheet into a bad-bank model. The combination of tough news sent financial sector stocks lower: The Stoxx Europe banks sub-sector declined 1.4% Tuesday

The downturn in stocks was part of a broad reversal of Monday's market action. Bonds, along with the dollar and yen, received a small lift while stocks defined as defensive, such as pharmaceuticals, utilities and food producers, showed some gains.

Patrick Moonen, senior equities strategist at ING Investment Management, thinks defensive sectors will play a key role heading into 2010. Next year, "we are likely to see a change in sector leadership away from cyclicals," he said. "The recovery trade will broaden towards more defensive sectors."

Moonen said health-care and telecoms offer the most attractive valuations, while investors should be cautious of the consumer discretionary sector, since consumers continue to face headwinds in the form of poor personal balance sheets and a tough job market.

In equity markets, the pan-European Stoxx 600 index closed down 0.6% at 246.9. London's FTSE 100 declined 0.6% to 5324.0, Frankfurt's DAX fell 0.6% to 5769.3 and Paris's CAC-40 finished 0.7% lower at 3784.6. In Asian equity markets, the Shanghai Composite shed 3.5% having risen 13 of the past 16 sessions in November.

The European session was choppy, with a stronger-than-expected jump in November business confidence in Germany offering some support. However, an update of U.S. GDP disappointed investors. The Commerce Department revised third-quarter growth figures lowers to reflect lower consumer spending and a wider trade deficit.

The dollar and euro seesawed against each other, with the greenback gaining a slight advantage. At 1655 GMT, the euro was at $1.4935 from $1.4964 late on Monday. The U.K. pound was at $1.6576 from $1.6615.

Meanwhile, crude dropped by more than a dollar, as concerns over high inventories weighed heavily. Late in London, oil had touched an intraday low of $75.60 a barrel. U.S. crude stocks are expected to rise in data due Wednesday from the Department of Energy, according to a survey of analysts held by Dow Jones Newswires. By the close of European markets, light, sweet crude for January delivery was down by nearly 2.0% at $76.19.

Elsewhere, gold traded below the record set on Monday of $1,173.75 per ounce, although analysts maintained that it could reach $1,200 in the next few days, spurred by currency fears and general concerns about the global economic climate. At 1700 GMT, gold on the Comex division of the New York Mercantile Exchange was flat at $1,164.9 per ounce.

European government bonds fared better than other asset classes as investors chose to concentrate on less risky areas. However, trading was lacklustre. After the slew of U.S. economic data, December bund futures contract were up 0.19 at 122.63.

Among the major stock movers, Lloyds Banking Group rose 2.6% in London after launching the largest-ever rights issue to raise GBP13.5 billion, offering shareholders new shares at GBP0.37 apiece.

In major market action, European bank shares dropped after a Standard & Poor's report on the banking sector questioned the capital strength of the sector. UBS, which fell 1.9%, and Allied Irish Banks, down 3.7%, were among the lenders with the lowest risk-adjusted capital ratios, according to the report.

Also, after German state-controlled bank WestLB said it's in intensive talks with the government about off-loading assets from its balance sheet into a bad bank, there was a sharp rise in the cost of protecting WestLB's debt against default

European mining shares pared recent gains as the dollar strengthened, undercutting recent commodity strength. Vedanta Resources shares fell 2.6%.

"I think the dollar is weak mostly because the U.S. is not likely to object to a weak currency. Interest rates are also at record lows. Commodity-related stocks are doing well on the back of this move," said Ad van Tiggelen, strategist at ING Investment Management.

Carrefour shares jumped 3.1% to 32.53 euros a share. J.P. Morgan upgraded the French supermarket group to overweight from neutral on Tuesday and added it to its analyst focus list.

"We believe there is an 80% probability of a successful turnaround," the broker said and upped its target price to 40 euros a share, from a previous level of 33 euros.

Shares of Lloyds Banking Group managed to buck the trend among weak banking shares, rising 2.6%. The lender successfully priced its record 13.5 billion-pound ($22.3 billion) share sale at 37 pence a share.

Back on the downside, shares of Legrand fell 6.5% after Kohlberg Kravis Roberts & Co. and Wendel said that they will jointly sell 30 million shares, or 11%, of the electrical fittings firm.

Wendel shares declined 0.8% and KKR was unchanged in Amsterdam.

(Sarah Turner in London contributed to this article.)

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(END) Dow Jones Newswires

November 24, 2009 12:55 ET (17:55 GMT)


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