US economic unease caps stock market gains; Australian shares flat despite uncertain election

By Pan Pylas, AP
Monday, August 23, 2010

US economic unease caps global stock market gains

LONDON — European stock markets rose, then lost some of those gains Monday after lackluster early trading on Wall Street reinforced continuing worries about the U.S. economic recovery. Corporate dealmaking activity helped limit the damage.

In Europe, the FTSE 100 index of leading British shares closed up 39.56 points, or 0.8 percent, at 5,234.84 while Germany’s DAX rose 5.75 points, or 0.1 percent, at 6,010.91. The CAC-40 in France ended 27.11 points, or 0.8 percent, higher at 3,553.23.

In the U.S., the Dow Jones industrial average was down 9.9 points, or 0.1 percent, at 10,203.63 around midday New York time, while the broader Standard & Poor’s 500 futures fell 0.1 percent to 1,070.74.

All the main indexes in Europe and the U.S. had been trading solidly higher but the buying momentum ran out of steam as investors continued to fret about the U.S. economic recovery — with little economic news ahead of a key speech Friday from U.S. Federal Reserve chairman Ben Bernanke and trading volumes light, stocks may flatline this week, analysts said.

“There still seems to be a lack of confidence amongst investors following the disappointing data over recent weeks and it is difficult to see anything but directionless trading for the major stock market indices in the days ahead, as markets suffer a double whammy of low holiday volumes and little economic data to shake up sentiment,” said Yusuf Heusen, a senior sales trader at IG Index.

Disappointing economic data over the last couple of weeks has contributed to a retreat in equity markets around the world. But a pickup in the volume and value of mergers and acquisitions has helped limit the losses. The most high-profile bid last week was BHP Billiton’s $38.5 billion hostile bid for Canadian fertilizer producer Potash Corp.

There’s been some M&A talk this week too, particularly in Europe, and that’s helped sustain interest in the markets in what is usually a quiet time of year. Trading volumes in Europe and the U.S. usually don’t pick up from the summer lull until after the Labor Day holiday in the U.S., which this year falls on September 6.

British bank HSBC Holdings PLC said Monday it is in talks with financial group Old Mutual PLC to buy a controlling stake in South Africa’s fourth largest bank Nedbank Group Ltd. in a deal worth as much as $6.8 billion.

Shares in Australia’s Foster’s Group Ltd ended 6.5 percent higher on news media reports that SABMiller PLC was preparing a 7 billion pound bid for Foster’s beer business.

Even though investors are on the lookout for continued deals, overall sentiment in the markets remains fragile at best. The scale of the negative reaction to some worse than expected second-tier U.S. economic data last week provides clear evidence of where investors’ main worries lie.

Foreign exchange markets are among the most affected by the worries over the U.S. economy.

Even though the news out of the U.S. has been broadly disappointing over the last couple of weeks, the dollar does not seem to be suffering, particularly against the euro, because the main fear is that the slowdown in the U.S. will bring growth down everywhere else. A risk-averse trading environment also usually helps the dollar, due to its reputation as a safe-haven currency.

By late afternoon London time, the euro was down 0.3 percent at $1.2656, way down on the four-month high of $1.333 it was trading at just over two weeks ago.

Figures showing that the economic recovery in the eurozone was losing momentum did little to help the euro’s fortunes.

The monthly eurozone purchasing managers index — a gauge of business activity — dropped to 56.1 in August from 56.7 in July. The drop was bigger than anticipated in the markets and shows that growth, though relatively healthy, is slowing — anything above 50 indicates expansion.

One of the main points of interest in the markets is what happens in Australia after national elections on Saturday gave neither of the major political parties an outright majority in parliament.

Australian shares traded flat despite an uncertain general election result, as mining companies rallied on hopes that a government tax proposal will be scrapped.

The ruling Labour Party and the opposition Liberal Party are now lobbying for the support of independent lawmakers to try to stitch together the nation’s first minority government since World War II.

The S&P/ASX 200 index fell 1.9, or less than 0.1 percent, to 4,429.00 — the retreat was negligible as commodity stocks advanced on hopes that a proposed mining profits tax would be dropped if the opposition Liberal Party forms the new government. Mining giant BHP Billiton Ltd. added 0.6 percent, while rival Rio Tinto Ltd. rose 0.9 percent.

Elsewhere in Asia, Japan’s Nikkei 225 stock average shed 0.7 percent to 9,116.69 as a strong yen — which can reduce the profits of Japanese exporters — continued to drag sentiment. As expected, Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa discussed on the telephone recent foreign exchange developments, according to Kyodo news agency.

Hong Kong’s Hang Seng lost 0.6 percent to 20,863.92 and Seoul’s Kospi fell 0.4 percent to 1,767.71.

The Shanghai Composite index eased 0.1 percent to 2,639.27 while markets in Taiwan, Malaysia, Indonesia and Thailand rose.

Benchmark crude for October delivery was down 61 cents at $73.21 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 97 cents to settle at $73.82 a barrel on Friday.

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