World markets awaiting US corporate earnings

LONDON — European stock markets traded lower Wednesday even as U.S. stocks recouped heavy losses from the previous session at the open. Investor focus remains on the U.S. second-quarter earnings season, which kicks off later.

In Europe, the FTSE 100 index of leading British shares was down 18.94 points, or 0.5 percent, at 4,168.06 while France’s CAC-40 fell 13.71 points, or 0.5 percent, to 3,034. Germany’s DAX bucked the prevailing European trend, rising 22.46 points, or 0.5 percent, to 4,622.47.

In the U.S., the Dow Jones industrial average was up 50.03 points, or 0.6 percent, at 8,213.63 soon after the open while the broader Standard & Poor’s 500 index rose 4.82 points, or 0.6 percent, to 885.85. On Tuesday, U.S. stocks had fallen far more heavily than their counterparts in Europe — the S&P went below its 50-day and 200-day moving averages and below where it started the year, even after 15 percent gains in the second quarter, its best performance since 1998.

Key over the coming days and even weeks could be the second-quarter earnings reporting season as it will provide clues about whether companies have already seen the worst of the recession or whether they are still struggling in the first synchronized global economic downturn since the Second World War. Aluminium company Alcoa Inc. is the first Dow constituent to report.

“A lot hinges on the earnings season and how spectacular (or otherwise) the U.S. corporate results end up being,” said David Jones, chief market strategist at IG Index.

“Until it is clearer just how well companies have weathered the recent months it would not be surprising to see nervy trading over the next few days,” he added.

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.

But disappointing economic news over the last few weeks, culminating in last Thursday’s worse than expected U.S. jobs report for June, has altered the general mood prevailing among investors that a significant rebound in the U.S. was a distinct possibility. Since peaking in early June, the S&P and the Dow Jones industrial average have dropped around 7 percent.

“Given the strong performance of stocks relative to March lows, a reality check from earnings could be detrimental to risk appetite,” said Ashley Davies, an analyst at UBS.

Stocks aren’t the only investments suffering at the moment. Oil prices have fallen over $10 a barrel over the last week or so amid the waning investor optimism. Benchmark crude oil for August delivery fell 82 cents to $62.11 a barrel in electronic trading on the New York Mercantile Exchange.

Earlier in Asia, Japan’s benchmark Nikkei 225 stock average tumbled 227.04 points, or 2.4 percent, to 9,420.75 — its sixth fall in a row and its lowest close in six weeks. Worse-than-expected machinery orders data disappointed investors and fanned concerns about the fragility of the world’s second-biggest economy.

Elsewhere, Hong Kong’s Hang Seng index dropped 0.8 percent, to 17,721.07 while South Korea’s Kospi lost 0.2 percent to 1,431.02. Mainland China’s Shanghai Composite index — the world’s best-performing index this year — slipped 0.3 percent, while Australia’s key stock measure was flat.

The dollar was down 0.6 percent at 94.23 yen while the euro rose 0.1 percent to $1.3930.

Stuart Bennett, senior foreign exchange strategist at Calyon Credit Agricole, noted that the euro’s recent performance has echoed what has been going on in stock markets. The euro has lost over 2 percent of its value against the dollar since the start of June — around half the losses posted in stock markets.

“This apparent greater sensitivity does indicate that the euro would be vulnerable if concerns over equities come to fruition,” he said.

AP Business Writer Tomoko A. Hosaka in Tokyo contributed to this report.