Strong US economic data help world stock markets look past European debt problems

By Carlo Piovano, AP
Thursday, September 30, 2010

World markets mixed amid US jobs data, debt news

LONDON — World markets were mixed Thursday as investors booked profits at the end of a month of solid gains and amid upbeat signs about the U.S. economy. Ireland’s announcement that it would sink billions more into its failed banks was greeted with equanimity.

European stocks fluctuated all day, torn by worries of a flare-up in the debt crisis and hopes that governments were facing their debt problems head on.

U.S. jobs and growth figures later offered some support, but investors who have enjoyed the strongest gains for the month of September since 1939 seem to be taking their profits off the table.

Britain’s FTSE 100 closed down 0.4 percent at 5,548.62 while Germany’s DAX ended 0.3 percent lower at 6,229.02. France’s CAC-40 was down 0.6 percent at 3,715.18.

Asian markets closed lower and Wall Street slid after an initial rally. The Dow industrial average was down 0.6 percent at 10,773.22 while the Standard & Poor’s 500 fell 0.5 percent to 1,139.44.

U.S. government data showed that first-time claims for unemployment benefits fell more than economists had predicted last week. Furthermore, the official estimate for economic growth was raised to 1.7 percent for the second quarter, up from 1.6 percent estimated a month ago.

That helped allay fears that the U.S. economic recovery is running out of steam and led investors’ attention away from Europe, where governments are struggling with the costs of bailouts, austerity measures and poor growth prospects.

Moody’s Investor Services cut Spain’s public debt rating, a move many in the markets had expected but which confirmed the country still has a torturous path out of recession.

Ireland said it would put euro3 billion ($4.1 billion) more into Allied Irish and take majority control. Along with other bailouts, that would push Ireland’s public deficit above 30 percent of annual economic output, a postwar record in Europe.

But market reaction to Ireland’s announcement was mixed. After digesting the figures, markets were on the whole relieved and Ireland’s borrowing costs actually fell.

“Overall, today’s announcement might raise some hopes that Ireland is taking decisive and transparent steps to address the problems in its banking sector,” said Ben May, analyst at Capital Economics.

Still, the sheer scale of the bailout’s cost and the Irish government’s determination not to default on any of the debt mean the country will struggle with painful austerity cuts and weak growth for some time to come.

May noted that Irish debt is fully funded halfway through 2011, which is one reason markets have taken the announcement in stride.

“But with the continued weakness of the economy raising clear doubts over the government’s ability to meet its deficit reduction goals, worries that Ireland will ultimately be forced to restructure its debts are unlikely to subside in the foreseeable future,” he said.

Thursday’s announcements from Ireland came a day after labor unions held widespread demonstrations across Europe against governments’ austerity measures. The protests unnerved investors concerned that social unrest could derail the region’s determination to reduce deficits during tough economic times.

In Brussels, meanwhile, finance ministers gathered to debate new rules that would crack down on overspending governments — but disagreements over key elements lingered.

Tougher rules are considered necessary to convince markets that the region will be able to avoid a repeat of the debt crisis that is still plaguing it. The EU wants a structure that can overcome individual countries’ unwillingness to reprimand each other over excessive spending.

In Asia, Japan’s benchmark Nikkei 225 stock average lost 190.03 points, or 2 percent, to close at 9,369.35. Sentiment in Tokyo was also sluggish as Japan’s industrial production fell for the third straight month in August.

South Korea’s Kospi gained 0.3 percent to 1,872.81. Australia’s S&P/ASX 200 shed 1.3 percent and Hong Kong’s Hang Seng retreated 0.1 percent.

Benchmarks in Singapore, India and Taiwan were down while Thailand, Shanghai and Jakarta were up.

In currencies, the dollar fell to 83.53 yen from 83.78 yen. The euro eased to $1.3600 from $1.3622 after touching a new five-month high.

Benchmark crude for November delivery was up $1.34 at $79.20 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained $1.20 to settle at $77.86 on Wednesday.

Associated Press writer Pamela Sampson in Bangkok contributed to this report.

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