European stocks pare losses as Wall Street rises; BP, European debt crisis still haunt markets

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European stocks pare losses as US opens higher

LONDON — European stocks fell Wednesday on worries about the massive oil spill in the Gulf of Mexico and the financial impact of the government debt crisis on some of Europe’s banks.

The FTSE index of leading British shares was down 1.2 percent at 5,101.57, while Germany’s DAX fell 0.9 percent to 5,927.87. France’s CAC-40 was down 1.3 percent at 3,456.88.

Europe’s major indexes had been even lower earlier in the session but a modest rebound on Wall Street following sizable losses on Tuesday helped limit the selling. The Dow industrials average was up 0.3 percent at 10,055.61 while the broader Standard & Poor’s 500 rose 0.5 percent to 1,075.73.

U.S. shares were given an early boost by a stronger-than-expected 6 percent monthly increase in pending home sales — a sign that the housing market is finally recovering and consumers enjoying the effects of tax credits.

On Tuesday, Wall Street sold off as worries over the oil spill mounted following the news that the U.S. government was starting criminal and civil investigations against BP PLC, Europe’s second biggest oil company. That has raised concerns that the sector will now be more tightly regulated.

Shares in BP, which slid 13 percent on Tuesday — its biggest one-day fall in 18 years — were down another 2.3 percent.

Most of the pessimism in recent weeks has been related to Europe’s government debt problems and the many attempts by the continent’s policymakers to get a handle on the crisis.

“The BP debacle has been a serious contributor (to negative sentiment), but we must not underestimate the damage that the European debt crisis is contributing to a market place that is clean out of confidence,” said David Buik, markets analyst at BGC Partners.

Over the last week or so, investors have started to worry about the impact on the finances of Europe’s banks from the debt problems afflicting many countries, most notably Greece, Spain and Portugal — in its latest financial stability report, the European Central Bank warned that Europe’s banking system may have to report writedowns of euro195 billion over the next 18 months.

These worries contributed to a further fall in the value of the euro currency — on Tuesday it dropped to a fresh four-year low of $1.2112 before recovering Wednesday to $1.2208.

Further weighing on the euro this week were the mounting tensions in the Middle East following Israel’s raid on a Gaza-bound aid ship and worries over an economic slowdown in China. Investors are again looking for assets considered safe — the dollar is widely thought of as one of the world’s leading safe havens, along with gold and the Swiss franc.

“These are not normal markets and with continuing fears about problems in the banking sector in Europe, tensions in the Middle East and a possible slowdown in China not helping, sentiment remains fragile and risk aversion remains the favoured play,” said Michael Hewson, an analyst at CMC Markets.

Earlier in Asia, Hong Kong’s Hang Seng dipped 0.1 percent to close at 19,471.80 and Australia’s S&P/ASX 200 dropped 0.7 percent to 4,381.0.

Japan’s Nikkei 225 stock average lost 108.59 points, or 1.1 percent, to 9,603.24 amid news that embattled Japanese Prime Minister Yukio Hatoyama was resigning.

Hatoyama had faced growing pressure from within his Democratic Party of Japan to resign ahead of July’s upper house elections after his approval ratings plummeted over his broken campaign promise to move a U.S. Marine base off the southern island of Okinawa.

Hatoyama is the fourth Japanese prime minister to resign in four years.

Benchmark crude for July delivery was up 22 cents at $72.80 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.39 to settle at $72.58 on Tuesday.

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Associated Press Writers Pan Pylas in London and Pamela Sampson in Bangkok contributed to this report.