World stock markets up modestly after big fall in US housing starts

World stocks up modestly after US housing data

LONDON — European stocks were higher and Wall Street was expected to edge up on the open Wednesday as tame U.S. inflation data and a sharp fall in housing starts cemented expectations that U.S. interest rates will not be raised any time soon.

In Europe, the FTSE 100 index of leading British shares was up 15.43 points, or 0.3 percent, at 5,361.36 while Germany’s DAX rose 40.30 points, or 0.7 percent, at 5,818.73. The CAC-40 in France was 28.75 points, or 0.8 percent, higher at 3,857.81.

Wall Street was poised to open slightly higher after Tuesday’s largely flat session. Dow futures were up 11 points, or 0.1 percent, at 10,409, while the broader Standard & Poor’s 500 futures were up 1.6 point, or 0.1 percent, at 1,109.

U.S. economic data before Wall Street’s open did nothing to dislodge market expectations that the Federal Reserve will keep its main interest rate at near zero percent until well into next year.

Consumer prices rose 0.3 percent in October, slightly above market forecasts for a 0.2 percent rate, largely because of higher energy prices and the biggest increase in new car prices in 28 years. But investors were mainly focused on housing starts, which unexpectedly tumbled 10.6 percent in October to a six-month low of 529,000 units.

Much of the rally in stocks since March has been due to investors borrowing cheap dollars to finance potentially more lucrative purchases — any indications that U.S. rates are heading up could bring this sort of investment, called a carry trade, to a grinding halt.

“The main concern for investors at this stage is that the currently lucrative carry trade in which people are taking advantage of low rates on the dollar to invest in equities might blow up and send equities downhill,” said Anthony Grech, market strategist at IG Index.

The fall in the housing starts could stoke concerns that the economic recovery in the world’s largest economy will not be as strong as many in the markets have been predicting — stock markets have rallied strongly since March as investors reined in their economic doomsday expectations partly because of a recovery in the property market.

The state of household spending in the U.S. is also key for recovery — it accounts for around 70 percent of the nation’s economy — and earnings so far this week have been mixed.

Meanwhile, traders are keeping a close eye on the dollar, which has a major impact on the movement in commodity and energy price stocks, as well as any suggestions that U.S. borrowing costs will be rising sooner than anticipated.

The dollar won a brief respite over the last couple of days after U.S. Federal Reserve chairman Ben Bernanke and European Central Bank president Jean-Claude Trichet seemingly attempted to talk up the U.S. currency, which has slid to multiyear lows against the yen and to near 15-month lows against the euro.

Some of the gains made in the early part of the week were lost Wednesday as the euro recovered 0.4 percent to $1.4934 and the dollar fell 0.1 percent to 89.18 yen.

“The dollar downtrend remains intact despite the increased volatility seen over the past week,” said Hans Redeker, global head of foreign exchange strategy at BNP Paribas.

The pound’s exchange rate was volatile after minutes to the last rate-setting meeting at the Bank of England showed that there was a three-way split as to whether to expand the money supply program and by how much it should be enlarged.

Initial reaction was to send the pound sharply down — within minutes of the release of the minutes, the pound had fallen around half a cent to fall to $1.6870, but that was soon more than made up as investors said the likelihood of further asset purchases was unlikely given the three-way split on the Monetary Policy Committee.

Earlier, Japan and Hong Kong led the Asia’s declines, with Tokyo’s Nikkei 225 stock average losing 53.13 points, or 0.6 percent, to 9,676.80 and Hong Kong’s Hang Seng shedding 73.82, or 0.3 percent, to 22,840.33.

Markets in Indonesia, Singapore and Thailand also fell.

South Korea’s key index rose 1.1 percent to 1,603.97 and Shanghai’s benchmark was up 0.6 percent to 3,303.23. Shares in Taiwan and Australia were modestly higher as well.

Oil prices rose further, closing in on $80 barrel after an unexpected drop in U.S. crude supplies suggested demand could be improving. Benchmark crude for December delivery was up 48 cents to $79.62 a barrel in electronic trading on the New York Mercantile Exchange.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.