Tuesday, February 3, 2009

World stocks fall on poor earnings, banking woes

World stocks fall on poor earnings, banking woes

World stocks mostly lower as investors prepare for more bad earnings, deeper economic downturn

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World stock markets finished mostly lower Monday, with financial and energy stocks leading the way down as investors prepared for another week of poor earnings reports and gloomy economic data.

After Asian markets slipped, there was little appetite to buy in Europe as faith in a rapid turnaround in the global economy and corporate earnings faded. Britain's benchmark FTSE 100 ended down 1.7 percent at 4,077.78, while the German DAX dropped 1.5 percent at 4,271.04. France's CAC 40 shed 1.5 percent at 2,930.05.

On Wall Street, some buying in technology stocks lifted the Nasdaq composite, which rose 18.01, or 1.22 percent, to 1,494.43. But the Dow Jones industrial average 64.03, or 0.80 percent, to 7,936.83, hurt by sliding industrial, energy and financial stocks.

Department store operator Macy's Inc. also spooked investors by announcing it plans to cut 7,000 jobs or about 4 percent of its work force and reduce its dividend.

Bank shares were hit particularly hard Monday, with Barclays PLC down 10.6 percent in London after ratings agency Moody's downgraded its long-term credit rating.

Ashraf Laidi, chief market strategist at CMC Markets, said the downgrade has dominated other news "as they imply the potential for similar downgrades across the European continent."

"Risk reducing trades emerge across the board," Laidi said. That means investors are dumping vulnerable equities in favor of safer assets like government bonds.

BNP Paribas fell 8.7 percent after its acquisition of parts of troubled lender Fortis NV was revised Friday, while energy stocks slumped as crude prices dropped below $41 a barrel on expectations that demand will languish as countries struggle with recession.

"The spotlight is on the economy and earnings and doubts about when the recovery in the U.S. will materialize," said Song Seng Wun, head of research at CIMB-GK in Singapore. "We are likely to continue experiencing bouts of optimism alternated with periods of uncertainty. Tomorrow the markets could be racing ahead."

Beyond corporate news, economic data from the U.S. was mixed, with weak consumer spending offset somewhat by a small rebound in the ISM manufacturing index. The ISM rose to 35.6 in January from 32.9 the previous month. However, analysts warned that this was still not a sign of recovery in the U.S. industrial sector.

"Blind panic set in at the end of last year. That panic may now be fading, but conditions are still desperately weak," said Paul Ashworth, senior U.S. economist at Capital Economics.

Markets are expected to continue focusing on government efforts to help banks. The Federal Reserve is prepared to buy Treasuries to help the economy, talks continue on a so-called "bad bank" to absorb toxic assets from financial firms, while the Bank of England is from today cleared to buy "high quality" assets from banks to provide liquidity and boost lending.

Analysts say the bailouts and rescue packages have not been wholly successful in keeping banks safe from swelling losses and write-downs, and have yet to prove they can help the economy.

"Such rescue efforts so far have failed to stem financial sector problems. Bankers fear that as the recession deepens, the risk-weighting of the assets they hold is likely to grow, eroding their capital reserves as they are measured by regulators," said Christine Li, analyst at Moody's Economy.com in London.

She said the problem with the U.S. plan to create a "bad bank" to store the toxic assets is how to value those assets -- if the price is too high, the taxpayer will be burdened, and if it is too low, it will not help banks improve their balance sheets and recover.

Looking at the week ahead, a slew of interest rate cuts are due in Britain, Norway, Australia, and the Czech Republic, although that has not been enough to boost sentiment. On Thursday all eyes will be on the European Central Bank, which has already signaled it would leave rates unchanged despite the economic downturn.

Latin American stocks fell as investors bet that another week of poor earnings and gloomy economic data would further sink markets.

Brazil's benchmark Ibovespa index dropped 1.6 percent to 38,666, as lower oil prices pushed shares of state-run oil company Petroleo Brasileiro SA down 1.4 percent to 24.69 reals.

Mexico's Bolsa was closed Monday for a public holiday, but Argentina's Merval fell 1.8 percent to 1,058, while Peru's IGBVL lost 1.4 percent to 6,811 and Colombia's IGBC dipped 0.8 percent to 7,728. Chilean stocks gained, with Santiago's IPSA rising 0.2 percent to 2,554.

Toronto's S&P/TSX composite index also retreated, ending down 70.07 points to 8,624.83.

In Asia, Hong Kong's Hang Seng slid 3.1 percent to 12,861.49 and Japan's Nikkei 225 stock average dropped 1.5 percent to 7,873.98. South Korea's Kospi fell 1.3 percent at 1,146.95. Australia's main index fell 1.2 percent and markets in Singapore, Thailand and India fell 2 percent or more.

Mainland China's market, reopening after the weeklong Lunar New Years holiday, rose amid a report the government is considering new steps to boost growth. The Shanghai Composite index gained 1.1 percent to 2,011.68.

Oil prices tumbled nearly 4 percent in a volatile trading day fraught with more bad economic news, including thousands of job cuts by Macy's department store. Light, sweet crude for March delivery fell $1.60 to settle at $40.08 a barrel on the New York Mercantile Exchange after tumbling at one point to $39.83.

The 16-nation euro rose to $1.2827 in New York trading from $1.2794 late Friday. The British pound sank to $1.4269 from $1.4456, while the dollar slipped to 89.60 yen from 89.88 yen. The dollar jumped to 1.2449 Canadian dollars from 1.2290.

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