European markets trim gains as US drop as investors await Bernanke testimony

World markets awaiting Bernanke testimony

LONDON — European stock markets trimmed a large chunk of their earlier gains Wednesday as U.S. stocks fell ahead of comments from U.S. Federal Reserve chairman Ben Bernanke.

In Europe, the FTSE 100 index of leading British shares closed up 75.18 points, or 1.5 percent, at 5,214.64 while Germany’s DAX rose 22.89 points, or 0.4 percent, to 5,990.38. The CAC-40 in France ended 25.90 points, or 0.8 percent, higher at 3,493.92.

In the U.S., the Dow Jones industrial average was down 4.39 points at 10,225.57 around midday New York time, while the broader Standard & Poor’s 500 index fell 2.05 points, or 0.2 percent, to 1,081.43.

European stocks outperformed their U.S. counterparts Wednesday because they had ended down Tuesday before Wall Street rallied.

The main reason behind Europe’s advance Wednesday was Apple’s strong results after the close Tuesday — the maker of the iPhone reported a 78 percent increase in net income in the April-June quarter to $3.25 billion and a 61 percent revenue improvement to a record high of $15.7 billion.

Coca-Cola results also came in above forecasts. Income rose 16 percent on higher sales of soft drinks and juices in every part of the world except Europe.

The outlook for stocks over the rest of the day could well hinge on what Bernanke tells lawmakers in his half-yearly testimony, which begins at 1800 GMT.

“His testimony comes at an important time given that recent economic indicators point to a slowdown in the pace of U.S. economic recovery,” said Neil Mackinnon, global macro strategist at VTB Capital.

In Europe, sentiment towards the auto sector was boosted by better-than-expected results from Italy’s Fiat, which controls Chrysler. Fiat reported a return to second-quarter profits on improved sales of agriculture equipment and trucks, and said it may raise its 2010 forecasts. Its shares spiked 6 percent to euro9.60 ($12.33) in Milan.

Other carmakers, such as France’s Renault and Germany’s Daimler rose on the back of Fiat’s report, as hopes rose that they too may report stronger than anticipated earnings.

As the week progresses, investors will be increasingly focusing on the results of the stress tests into a large chunk of the EU’s banks.

The results of the tests are due after Europe’s markets close on Friday and a number of investors remain skeptical about whether they are a credible exercise.

“Questions continue to be asked as to the credibility of the EU bank stress tests,” said Jane Foley, research director at Forex.com

Some of the unease about the stress tests is evident in the performance of the euro over the last couple of days. Having set a new four and a half month high of $1.3028 Tuesday, the euro has fallen around 2 cents. By late afternoon London time, the euro was down 0.5 percent on the day at $1.2813.

Another currency in focus has been the yen, with many currency strategists predicting that it could soon break above last year’s high against the dollar, which would open up the potential for a move up to levels not seen since 1995.

That’s a concern because a rising yen could hit Japanese exports to the United States, all other things being equal.

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.

By late afternoon London time, the dollar was down another 0.2 percent on the day at 87.29 yen.

The yen’s rise has been having a fairly dramatic impact on Japanese stocks. The country’s Nikkei 225 stock average gave up early gains to fall 21.63 points, or 0.2 percent, to 9,278.83, meaning that it has lost 5.3 percent in the past four sessions.

Hong Kong’s Hang Seng advanced 1.1 percent to 20,487.23, South Korea’s Kospi added 0.7 percent to 1,748.78 and Australia’s benchmark gained 0.2 percent at 4,412.70.

China’s Shanghai Composite Index edged up by 0.3 percent to 2,535.39 after big gains in the previous two sessions amid expectations that Chinese authorities are likely to moderate efforts to cool the world’s No. 3 economy.

Benchmark crude for September delivery was down 91 cents at $76.67 a barrel in electronic trading on the New York Mercantile Exchange.

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Associated Press Writer Kelly Olsen in Soeul contributed to this report.