European markets pare gains on Wall Street losses

LONDON — European stock markets gave up earlier gains Thursday as Wall Street turned lower after downbeat trading updates from retailers. Investors were also reluctant to stake out positions ahead of Friday’s closely-watched U.S. non-farm payrolls report for May.

In Europe, Germany’s DAX was down 3.89 points, or 0.1 percent, at 5,050.64 while France’s CAC-40 index was 11.29 points, or 0.3 percent, higher at 3,320.94. Britain’s FTSE 100 index lagged the other two main European markets for a second day running amid ongoing uncertainty about the future of Prime Minister Gordon Brown. It was down 15.01 points, or 0.3 percent, at 4,368.41.

On Wall Street, the Dow Jones industrial average was down 35.30 points, or 0.4 percent, at 8,639.98 in morning trade New York time while the broader Standard & Poor’s 500 index fell 1.74 point, or 0.2 percent, to 930.02.

Wall Street had opened modestly higher after U.S. government data showed that the number of unemployed workers continuing to receive benefits unexpectedly dropped last week for the first time in 20 weeks. New jobless claims also declined fell 4,000 to 621,000. More good news for the jobs market came from Wal-Mart Stores Inc., which said it plans to hire about 22,000 people as it opens 150 new or expanded stores in the U.S. this year.

The claims data stoked hopes that Friday’s U.S. non-farm payrolls report for May may be better than current market forecasts.

However, any stock gains proved short-lived as disappointing reports from retailers such as Costco Wholesale and Hot Topic started to weigh on sentiment. The state of the U.S. consumer is crucial for the world economy as it accounts for more than two-thirds of U.S. economic activity.

“We’re just really waiting to see what tomorrow’s data is going to bring,” said Kent Engelke, chief economic strategist at Capitol Securities Management.

Earlier, the markets failed to react too much to the widely-anticipated decisions by the European Central Bank and the Bank of England to keep their benchmark interest rates unchanged at 1 percent and 0.5 percent, respectively. No new policy initiatives emerged from either bank even though the European Central Bank warned that the recession would be deeper than it thought at the time of its last set of projections since March.

Around the time of its last forecasts, stock markets started to rally on better than expected economic data, particularly out of the U.S. As stocks usually start rallying 6 to 9 months before actual recovery emerges in the official data, investors have bet that the massive sell-off in markets during the financial crisis was overdone.

If the data starts to continually come in below expectations, then investors may have to start revising down their recent optimistic tendencies.

European and U.S. stocks fell sharply on Wednesday after disappointing U.S. economic data stoked renewed concerns about the state of the world’s largest economy ahead of the jobs report.

Those concerns spilled through into the Asian session, where investors booked some profits made on Wednesday when the rest of the world was in retreat. Japan’s benchmark Nikkei 225 stock average fell 72.71 points, or 0.8 percent, to 9,668.96. Hong Kong’s Hang Seng shed 73.7, or 0.4 percent, to 18,502.77, but was down over 2 percent earlier.

Elsewhere in Asia, South Korea’s Kospi fell 36.75, or 2.6 percent, to 1,378.14. Benchmarks in Australia and Taiwan were off around 2 percent.

Oil prices recouped a large chunk of Wednesday’s losses, with benchmark crude for July delivery up $1.65 to $67.77 a barrel.

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AP Business Writers Sara Lepro in New York and Jeremiah Marquez in Hong Kong contributed to this report.