Goldman Sachs earns hit world markets; Japanese shares weighed by rising yen

World markets dive on soft Goldman Sachs earnings

LONDON — World markets fell Tuesday after lower than expected earnings from U.S. investment bank Goldman Sachs and another downbeat report on the U.S. housing market.

In Europe, the FTSE 100 index of leading British shares was down 46.77 points, or 0.9 percent, at 5,101.51 while Germany’s DAX fell 52.65 points, or 0.9 percent, to 5,956.46. The CAC-40 in France was 51.84 points, or 1.5 percent, lower at 3,434.49.

On Wall Street, the Dow Jones industrial average was down 103.61 points, or 1 percent, at 10.050.82 soon after the open while the broader Standard & Poor’s 500 index fell 8.43 points, or 0.8 percent, to 1,062.82.

Stocks had been trading largely flat in Europe and were only expected to open modestly lower in the U.S. until Goldman Sachs announced poor results, becoming the latest U.S. financial company to disappoint investors following Bank of America Corp. and Citigroup Inc. last week.

Goldman Sachs said its second-quarter net income fell 83 percent to $453 million because of lower trading revenues and a one-off charge for its settlement of civil fraud charges with the Securities and Exchange Commission.

Further selling pressure emerged with the news that U.S. housing starts fell 5 percent in June, nearly two times as much as markets expected. The fall was the second steep fall since a homebuyer tax credit expired in April and reinforced fears that the recovery in the housing sector will be muted at best.

“With high unemployment and tight credit likely to keep demand subdued and more foreclosures set to add to the already high number of unsold homes, homebuilding activity is going to remain weak for a long time,” said Paul Dales, U.S. economist at Capital Economics.

Earlier in Asia, most stock markets advanced, with Hong Kong’s Hang Seng index up 0.9 percent at 20,264.59 and mainland China’s Shanghai index spiked 2.2 percent at 2,528.73 amid expectations Beijing will moderate its efforts to cool the world’s No. 3 economy.

However, Japanese shares retreated 1.2 percent to 9,300.46 following a three-day weekend as investors continued to fret about the implication on exports from the big rise of the yen against the dollar over recent weeks. A higher yen will make Japan’s exports more expensive, all other things being equal, in the American marketplace.

The dollar has been hamstrung over recent weeks by a raft of disappointing data, which have reined in market expectations of any imminent increase in U.S. borrowing costs.

Michael Hewson, an analyst at CMC Markets, said the risk is that the dollar could soon fall below last year’s yen low of 84.80, which would open up the potential for a move down to lows not seen since 1995.

“This would present the Bank of Japan with a decision of whether or not to intervene in the markets, something they haven’t done since 2004, to weaken the yen as their exporters become less competitive,” said Hewson.

By mid afternoon London time, the dollar was flat on the day at 86.78 yen while the euro fell 0.5 percent at $1.2877.

The euro has managed to brush aside a credit downgrade of Ireland and reports that state-owned German bank Hypo Real Estate Holding AG has failed continent-wide stress tests, results of which are due this Friday.

“As news of the first casualty of the EU bank stress tests was reported, the market appears to be questioning whether tensions in the eurozone have eased sufficiently to justify gains for the euro above $1.30,” said Jane Foley, research director at Forex.com.

Benchmark crude for August delivery was down 50 cents at $76.04 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 53 cents to settle at $76.54 on Monday.

AP researcher Bonnie Cao in Beijing contributed to this report.