European markets pare losses after US open

April 19th, 2010 Leave a comment Go to comments

European stock markets found new support Monday, sharply reducing earlier losses as mixed trading in the U.S. tempered worry over the broader implications for banks from the U.S. fraud case against investment bank Goldman Sachs and the impact on airlines from the Iceland volcano.

London’s FTSE 100 and France’s CAC-40 were down 0.1 and 0.3 percent, respectively, by 3:15 p.m. London time (10:15 a.m. EST), easing back from a 0.7 percent decline earlier in the day.

Germany’s DAX blue-chip index rebounded to trade down a scant 0.02 percent, up from an earlier drop of 0.5 percent.

Oil was off over $2 per barrel, dragged down by expectations that the ongoing flight disruptions linked to the volacanic ash clouds would erode already unsteady crude demand.

The intraday rebound in European exchanges came as the U.S. market registered mixed results in early trading, with Citigroup and Eli Lilly & Co. posting better than expected profits. In early morning trading, the Dow Jones industrial average rose 5.07, or 0.1 percent, to 11,023.73. The Standard & Poor’s 500 index fell 0.89, or 0.1 percent, to 1,191.24, while the Nasdaq composite index rose 0.25, or less than 0.1 percent, to 2,481.51.

The uptick reflected the balance investors were seeking to find as they weighed continued concerns over civil fraud charges against Goldman Sachs with new earnings that show the economy is improving. It also marked a clear about-face from trading in Asia, where markets fell sharply after China announced measures to cool housing prices.

Driving the drop in Europe earlier in the day was concerns about a possible widening of the problems confronting Goldman Sachs & Co. On Sunday, British Prime Minister Gordon Brown called for authorities there to investigate the investment bank, accusing it of “moral bankruptcy.”

Brown’s comments came after the U.S. Securities and Exchange Commission last week claimed Goldman defrauded investors by failing to disclose key information about mortgage investments it sold as the housing market was collapsing in the run-up to the global financial meltdown.

The news had pushed the Dow down 125 points on Friday and led to speculation that Goldman and other large banks could face stepped-up prosecution or civil suits in connection with deals that contributed to the crisis, dragging on the massive profits banks have earned the last year with the help of government support.

Also weighing on markets were worries that the flight cancellations imposed because of the Iceland volcanic ash cloud would pummel the airline industry. The cancellations entered their fifth day and were costing airlines about $200 million per day.

In Asia, the markets were hammered by a weekend announcement by the Chinese government of more moves to level off housing prices, including possible restrictions on lending to buyers who have already have two or more homes. Real estate prices have risen for months despite government measures and promises to curb speculative property investments.

The Shanghai market fell nearly 5 percent, or 150 points to 2,980.30 — its biggest fall in eight months. Japan’s Nikkei 225 stock average fell 1.7 percent to 10,908.77 and Hong Kong’s Hang Seng index dropped 2.1 percent to 21,405.17. South Korea’s Kospi retreated 1.7 percent.

Financial names came under intense selling pressure in Asia, with Japanese banking shares among the heaviest casualties. Sumitomo Mitsui Financial Group Inc. fell 3.5 percent, and HSBC dropped 3.2 percent in Hong Kong.

“This time, it seems that the government determination to cool home prices is bigger than before,” said Mao Nan, a strategist for Oriental Securities in Shanghai.

Stock markets in Australia Taiwan and Singapore were also sharply lower.

Oil futures extended a decline that began in electronic trade in Asia, with the benchmark crude for May delivery falling by $2.06 per barrel by midafternoon London time to reach $81.18 per barrel. In currency markets, the dollar gained against the yen, moving up 0.21 percent to 92.12, but dropping 0.17 perceent, to 1.3453 against the euro.

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