Yen hits 15-year high after Kan reelection; stocks drop despite upbeat US retail sales data

Global stocks retreat as yen hits 15-year high

LONDON — A bigger than expected rise in U.S. retail sales data failed to boost stocks much on Tuesday, a day after markets rallied on the view that new global bank rules will prove to be less onerous than anticipated.

The Japanese yen, meanwhile, hit a fresh 15-year high against the dollar as Japan’s prime minister survived a leadership challenge — by mid afternoon London time, the dollar had fallen to as low as 83 yen.

In Europe, the FTSE 100 index was down 15.44 points, or 0.3 percent, at 5,550.09 while Germany’s DAX fell 16.47 points, or 0.3 percent, to 6,245.21. The CAC-40 in France was 11.82 points, or 0.3 percent, lower at 3,755.33.

In the U.S., the Dow Jones industrial average was down 25.66 points, or 0.2 percent, lower at 10,518.47 soon after the open while the broader Standard & Poor’s 500 index fell 4.09 points, or 0.4 percent, to 1,117.81.

Stocks have been lower all day after big gains Monday, when sentiment was buoyed by new rules requiring banks to hold more capital as a buffer against future difficulties. The recommendations, which are set to be approved by the leaders of the Group of 20 leading industrial and developing countries in November, were widely thought to be less stringent than investors had expected.

The drop on Tuesday was not substantial, though, and was even briefly reversed after Commerce Department figures showed that retail sales in the U.S. rose by a monthly 0.4 percent in August, modestly higher than the 0.3 percent anticipated.

The second straight monthly rise was largely due to back-to-school sales and continues the past week’s run of better than anticipated U.S. economic data, which has helped stocks around the world rally.

U.S. retail sales data are particularly important because U.S. consumer spending accounts for around 70 percent of the world’s largest economy.

“Many headwinds still exist that consumers will need to overcome for the recovery to be sustained, but today’s news is a positive indicator that they are doing that,” said Jim Baird, chief investment strategist for Plante Moran Financial Advisors.

The economic out of Europe was less rosy though.

Evidence of a faltering economic recovery in Europe came thick and fast Tuesday.

Figures from the Royal Institution of Chartered Surveyors indicated that house prices in Britain fell sharply in August even though separate data from the statistics office showed inflation at 3.1 percent in the year to August, more than anticipated and still way above the Bank of England’s target of 2 percent.

Meanwhile, the EU’s statistics office said industrial production for the 16 countries that use the euro was flat in July, against expectations for a modest increase, while the closely watched ZEW survey of German investor sentiment was much weaker than expected.

The fall in ZEW’s headline expectations indicator dropped from 14 in August to minus 4.3 in September. That was the first negative since March 2009 and provided further evidence that the big economic rebound in Germany during the second quarter has come to an end.

The euro was flat at $1.2878 in early afternoon London trade.

Earlier in Asia, the main focus was on the vote for the reelection of Prime Minister Naoto Kan as leader of the Democratic Party. His reelection has yet to be gauged in the stock markets as the result came after the Japan’s Nikkei closed 0.2 percent lower at 9,299.31 points.

The victory means Kan, who has been in office three months, will remain in power, providing some continuity for a country that has seen five leadership changes in the past four years, and is dealing with a surging currency and a spat with China over disputed islands.

Both Kan and Ozawa have made comments hinting at possible intervention, though Ozawa’s were seen as stronger in tone.

“Investors were speculating that if Ozawa won, Japan would intervene to boost the dollar,” said Yu Yokoi, a foreign exchange dealer at Mizuho Bank. “But Ozawa lost, and investors quickly reacted to it as the scenario of dollar-supporting intervention is less likely.”

China’s currency, meanwhile, hit a new high against the dollar for the third straight day as U.S. lawmakers prepared for hearings on Beijing’s foreign exchange policies.

China’s central bank set the yuan-dollar rate at 6.7378 on Tuesday, after putting it at 6.7509 on Monday and 6.7625 on Friday. The yuan closed at 6.7618 on Monday.

By late morning London time, the yuan was trading at 6.7455 to the dollar, after hitting a low of 6.7446.

Shanghai’s benchmark stock index eked out a marginal increase of less than 0.1 percent to 2,688.52.

Oil prices shed some recent gains, with benchmark crude for October delivery down 23 cents at $77.02 a barrel in electronic trading on the New York Mercantile Exchange.

AP Business Writer Kelly Olsen in Seoul, South Korea contributed to this report.