European markets pare gains after soft US opening
LONDON — European stocks gave up most of their gains Monday after a subdued opening on Wall Street and as investors awaited key economic developments later in the week for more direction.
By mid-afternoon London time, Germany’s DAX index was up 32.45 points, or 0.7 percent, at 4,808.92 while France’s CAC-40 rose 36.63 points, or 1.2 percent, to 3,168.36. The FTSE 100 index of leading British shares was up 18.10 points, or 0.4 percent, at 4,259.11.
Earlier, Europe’s main markets had been higher on expectations of a solid opening on Wall Street.
However, the U.S. opened largely flat, with the Dow Jones industrial average up only 3.85 points, or 0.1 percent, at 8,442.24 soon after the open. The broader Standard & Poor’s 500 index fell 1.25 points, or 0.1 percent, to 917.65.
The early gains in Europe were also fueled by the EU’s official economic sentiment index for the 16-country euro zone, which rose 3.1 points to 73.3 in June, well above the 71 reading expected in the markets.
Analysts said the data provided further clear evidence that the euro zone economy is no longer in free fall and that the contraction in the second quarter will be less than that experienced in the first three months of the year.
“June’s rise — the third in a row — adds to the evidence that the cyclical trough is already behind us and that the euro zone economy is likely to contract at a slower rate in Q2,” said Daniele Antonucci, European economist at Capital Economics.
In the first quarter, the euro zone shrank by 2.5 percent from the previous three months as demand for its high-value exports, like cars and heavy machinery, slumped with the sharp falls in global trade volumes.
The stock market, whose rally since March has faltered in the wake of some worse than expected data, will look to key economic news towards the end of the week for more direction.
Thursday will be at the forefront of investors’ attention as it brings the European Central Bank’s latest interest late decision and the closely-watched U.S. non-farm payrolls. Analysts expect June’s U.S. unemployment rate to rise around 0.3 of a percentage point to 9.7 percent — President Barack Obama has warned that it will top 10 percent in the coming months.
Equities rose from the middle of March until the start of June on hopes that the U.S. economy in particular will recover from recession sooner than anticipated. Many investors saw stock valuations as particularly cheap and started buying into the market.
However, a run of underwhelming economic news brought an abrupt end to the rally and altered the general mood prevailing among investors. Since the peak of the rally, stocks have shed around 5 percent of their gains since March.
Before Thursday, the markets will likely be fairly volatile given the coincidence of the month-end and the quarter-end, when many investors may look to book profits accumulated or look to stake out some longer-term positions.
“The imminent month-end and usual accompanying rounds of fundamental data should ensure we see more activity in the near term,” said CMC Markets dealer Matt Buckland.
Earlier in Asia, Japan’s Nikkei 225 index slid 93.92 points, or 1 percent, to 9,783.47, while Hong Kong’s Hang Seng index declined 71.75 points, or 0.4 percent, to 18,528.51. Meanwhile, Australia’s benchmark sank 0.4 percent to 3,886.9, while South Korea’s Kospi slipped 0.4 percent to 1,388.45. Markets in mainland China and India rose.
Oil prices moved back above $70 a barrel. Benchmark crude for August delivery rose $1.29 cents to $70.45 a barrel in electronic trading on the New York Mercantile Exchange.
Meanwhile, the dollar rose 0.1 percent to 95.36 yen while the euro slipped 0.1 percent to $1.4054.
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AP Business Writer Malcolm Foster in Bangkok contributed to this report.
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