Euro stocks recover as US futures turn higher

May 20, 2009 8:04:32 AM PDT
European stock markets recovered Wednesday as futures markets predicted a solid opening on Wall Street after Bank of America Corp. said it had raised $13.5 billion in much-needed capital. While the FTSE 100 index of leading British shares was down 7.69 points, or 0.2 percent, at 4,474.56, Germany's DAX was up 42.51 points, or 0.9 percent, at 5,002.13. The CAC-40 in France rose 6.95 points, or 0.2 percent, at 3,281.91.

Earlier, Europe's main indexes had been trading lower but an expected rebound on Wall Street helped the recent rally continue. Dow futures were up 40 points, or 0.5 percent, at 8,489, while the broader Standard & Poor's 500 futures rose 5 points, or 0.6 percent, to 911.50.

The expected gains on Wall Street come after Bank of America said it had raised $13.5 billion through a share sale just two weeks after the U.S. regulatory authorities said it needed a further $34 billion in capital to protect itself against losses should the economy worsen.

Beyond banks, investors are awaiting testimony from U.S. Treasury Secretary Geithner before a Senate committee over the White House's plan to steady the banking system.

Earlier, Asian markets were mixed with Japan's Nikkei 225 stock average edging up 54.35 points, or 0.6 percent, at the close to 9,344.64, but Hong Kong's Hang Seng ending down 68.19 points, or 0.4 percent, to 17,475.84.

Japan's gains came despite confirmation that the economy - the world's second biggest - shrank at a quarterly rate of 4 percent as exports plunged and companies slashed production. That was the worst performance since records began in 1955.

Stephen Lewis, an analyst at Monument Securities, said the Japanese figures were a useful reminder to the more bullish investors in the markets that the global economy is still in the doldrums and likely to remain there for a while yet.

"Some of the bolder spirits in those markets believe the recession is all but over," he said. "However, the evidence from recent economic data has been far from compelling in its support for such a bright scenario."

The trigger for the gains over the last couple of months has been some better than expected economic news around the world, particularly from the U.S - the Standard & Poor's 500 index in the U.S. has risen around 30 percent from its lows.

However, fairly downbeat U.S. retail sales data last week reined in some of the hopes of the more optimistic members of the investing community and stocks have since generally traded sideways.

Analysts said it has been noticeable that any corrections seen since the rally began in mid-March have been relatively mild, suggesting that there are still enough investors out there willing to buy into dips.

Philip Manduca, head of investment at ECU Group, reckons the S&P will overshoot to the upside, possibly up to 950 before the summer ends "as euphoria accentuates and the TV channels trumpet a new bull market."

However, Manduca thinks the S&P will end the year near its fair value of closer to 750 to 850 "but not before all the bears get heavily squeezed into taking a loss and the new bulls get caught at the top."

Elsewhere in Asia, South Korea's market added 0.5 percent to 1,435.70 while Shanghai's index declined 0.9 percent. India's market shed nearly 2 percent after soaring earlier this week after national elections settled the country's near-term political future. Markets in Taiwan, Australia and Singapore were marginally higher.

Broader stock indicators were mixed. The Standard & Poor's 500 index fell 1.58, or 0.2 percent, to 908.13.

Oil prices hovered above $60 a barrel Wednesday, with benchmark crude for July delivery up 54 cents to $60.64 a barrel.

The dollar fell to 95.64 yen from 96.09 yen, while the euro rose to $1.3692 from $1.3645 earlier.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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