TMC: World stocks fall on poor earnings, banking woes
(Associated Press WorldStream Via Acquire Media NewsEdge) LONDON_World stock markets dropped Monday, with financial and energy stocks leading the way down as investors prepared for another week of poor earnings reports and gloomy economic data.
After Asian markets closed mostly lower, there was little appetite to buy in Europe _ and more losses were expected on Wall Street _ as faith in a rapid turnaround in the global economy and corporate earnings faded.
Britain's benchmark FTSE 100 fell 2.2 percent at 4,057.28, while the German DAX dropped 2.6 percent at 4,224.47. France's CAC 40 shed 3.1 percent at 2,882.18.
Bank shares were hit particularly hard Monday, with Barclays PLC down almost 10 percent in London after ratings agency Moody's downgraded its long-term credit rating.
Ashraf Laidi, chief market strategist at CMC Markets, said the downgrade has dominated other news "as they imply the potential for similar downgrades across the European continent."
"Risk reducing trades emerge across the board," Laidi said. That means investors are dumping vulnerable equities in favor of safer assets like government bonds.
BNP Paribas fell as much as 14 percent after its acquisition of some parts of troubled lender Fortis was revised Friday, while energy stocks slumped as crude prices dropped below $41 a barrel on expectations that demand will languish as countries struggle with recession.
Markets expected Wall Street to follow European stocks lower. Futures indicated the Dow Jones industrials would drop 105 points to 7,850 and the Standard & Poor's 500 would shed 12.50 to 810.
Those losses would add to record percentage drops in the Dow and S&P 500 for January _ 8.8 percent and 8.6 percent. As January's performance typically sets the tone for the rest of the year, some market watchers took it as a bad omen.
"The spotlight is on the economy and earnings and doubts about when the recovery in the U.S. will materialize," said Song Seng Wun, head of research at CIMB-GK in Singapore. "We are likely to continue experiencing bouts of optimism alternated with periods of uncertainty. Tomorrow the markets could be racing ahead."
Beyond corporate news, markets are expected to continue focusing on government efforts to help banks. The Federal Reserve is prepared to buy Treasuries to help the economy, talks continue on a so-called 'bad bank' to absorb toxic assets from financial firms, while the Bank of England is from today cleared to buy 'high quality' assets from banks to provide liquidity and boost lending.
But analysts say the results of bailouts and rescue packages have not been wholly successful in keeping banks safe from swelling losses and write-downs.
"Such rescue efforts so far have failed to stem financial sector problems. Investors have continued to shift their money to safe havens such as government bonds and gold," said Christine Li, analyst at Moody's Economy.com in London.
"Bankers fear that as the recession deepens, the risk-weighting of the assets they hold is likely to grow, eroding their capital reserves as they are measured by regulators."
Li said the problem with the U.S. plan to create a 'bad bank' to store the toxic assets is how to value those assets _ if the price is too high, the taxpayer will be burdened, and if it is too low, it will not help banks improve their balance sheets and recover.
Looking at the week ahead, a slew of interest rate cuts are due in Britain, Norway, Australia, and the Czech Republic, although that has not been enough to boost sentiment. On Thursday all eyes will be on the European Central Bank, which has already signaled it would leave rates unchanged despite the economic downturn.
In Asia, Hong Kong's Hang Seng slid 3.1 percent to 12,861.49 and Japan's Nikkei 225 stock average dropped 1.5 percent to 7,873.98. South Korea's Kospi fell 1.3 percent at 1,146.95. Australia's main index fell 1.2 percent and markets in Singapore, Thailand and India fell 2 percent or more.
Mainland China's market, reopening after the weeklong Lunar New Years holiday, rose amid a report the government is considering new steps to boost growth. The Shanghai Composite index gained 1.1 percent to 2,011.68.
Oil prices slipped below $41 a barrel Monday in Asia as investors weighed the threat of an oil worker strike in the U.S. against the prospect of more bad economic news this week. Light, sweet crude for March delivery fell $1.08 to $40.60 a barrel by late morning in Europe in electronic trading on the New York Mercantile Exchange.
The euro fell to $1.2745 from $1.2811 late Friday. The dollar was trading at 89.34 yen, down from 89.95.
