European stocks drift lower as Q3 earnings start

LONDON — European stock markets fell modestly Wednesday after big gains the previous day as investors prepared for the start of the third-quarter corporate reporting season.

The FTSE 100 index of leading British shares was down 21.74 points, or 0.4 percent, at 5,116.24 while Germany’s DAX fell 10.81 points, or 0.2 percent, to 5,646.83. The CAC-40 in France was 3.47 points, or 0.1 percent, lower at 3,766.74.

Wall Street was poised for a modestly stronger open after its own hefty advance on Tuesday. Dow industrials futures were up 19 points, or 0.2 percent, at 9,673 while the broader Standard & Poor’s 500 futures rose 2.3 points, or 0.2 percent, to 1,050.90.

Investors will be looking to see if the third-quarter earnings season, which kicks off in earnest later with results from aluminum company Alcoa Inc., will provide further evidence that the world economy is poised for a rebound. Financial companies Goldman Sachs, Bank of America, Wells Fargo and industrial conglomerate General Electric are due to report next week.

The second quarter earnings season was generally better than expected and helped fuel a big rise in share prices in July and August. However, the forecast-busting earnings were largely due to cost cutting measures which are unlikely to be repeated.

“A second consecutive strong quarterly season would give investors a reason to continue the rally in equities, moving away from the uncertainty related to the mixed economic data and the focus on policy support,” said Silvio Peruzzo, an analyst at the Royal Bank of Scotland.

On Tuesday, a surprise interest rate hike from Australia’s central bank reassured investors that the global economic recovery was continuing. The Reserve Bank of Australia raised its benchmark interest rate by a quarter percentage point to 3.25 percent — the first hike by a major central bank in the current economic cycle.

Though other central banks are not expected to follow suit immediately, analysts said the Australian hike may be a sign that policymakers think the recovery from the deepest global recession since World War II is already well-entrenched.

On Thursday, the European Central Bank and the Bank of England announce their latest interest rate decisions.

Though both are expected to keep their benchmark rates at their respective record lows of 1 percent and 0.5 percent, investors will be interested to see any signs that they are becoming less gloomy about the economic prospects.

Earlier, major benchmarks in Asia were about 1 percent higher or more as investors rode the positive momentum from Tuesday.

Japan’s Nikkei 225 stock average gained 107.80 points, or 1.1 percent, to 9,799.60, and Hong Kong’s Hang Seng advanced 430.06 points, or 2.1 percent, to 21,241.59.

Australia’s index jumped 2.3 percent and Singapore’s index gained 0.9 percent. Taiwan’s benchmark was up 1 percent. South Korea’s market closed flat. Mainland China markets are closed for a weeklong holiday and reopen Friday.

Oil prices were higher, helped by the weak dollar and optimism that a global economic recovery would boost demand for crude. Benchmark crude for November delivery was changing hands at $71.16 in European morning trade, up 28 cents from the prior session. The contract rose 47 cents overnight.

The dollar was steady at 88.75 yen, while the euro was down 0.2 percent at $1.4700.

Associated Press Writers Carlo Piovano in London and Jeremiah Marquez in Hong Kong contributed to this report.