London: European stock markets fell hard yesterday, dragged down by profit-taking and jitters over the health of the US banking sector. Dealers said that while investors remained anxious about the impact of the swine flu outbreak on economic momentum, it was not the day’s principal concern.
“The problem of swine flu is real, notably for the airline and tourism sectors,” said Franck Bernard, a fund manger at BNP Paribas unit B Capital. “But the main issue is the banking sector.” In London the FTSE 100 index shed 1.69 percent to close at 4,096.40 points while in Paris the CAC 40 fell 1.66 percent to 3,051.02. The Frankfurt Dax lost 1.85 percent to end the session at 4,607.42 points.
Elsewhere, there were losses of 0.68 percent in Brussels, 1.39 percent in Amsterdam, 1.38 percent in Madrid and 1.73 percent in Milan. On Wall Street stocks opened weaker but later rebounded as a survey showing rising US consumer confidence helped the market shake off swine flu fears.
The Dow Jones Industrial Average reversed course and was up 0.9 percent at 8,032.16 at mid-day. The Nasdaq composite had risen 0.31 percent to 1,684.94. Trading was cautious as world health officials ratcheted up their alert level and the likely death toll from swine flu reached more than 150 in Mexico.
Adding to investor concerns was a Wall Street Journal report that the Federal Reserve had advised Citigroup and Bank of America that they needed to strengthen their capital following “stress tests” conducted by authorities. But the mood improved after the Conference Board reported its April index of consumer confidence rose to 39.2 from 26.9 a month earlier in a hopeful sign for consumer spending, a key driver of US economic activity.
Ian Shepherdson, chief US economist at High Frequency Economics, called the survey “a pleasant surprise” but cautioned that “the numbers are very weak still.” “Consumers continue to see current conditions as bleak, but are becoming much more upbeat about the outlook, particularly for jobs and business conditions,” said Scott Hoyt at Moody’s Economy.com. “This is a very positive sign for the economic outlook and provides further evidence that the recession should not extend beyond the end of this year.”
In Europe the Wall Street Journal report weighed heavily on bank stocks. On the Paris exchange, BNP Paribas fell 3.86 percent, Societe Generale 2.29 percent and Credit Agricole 2.13 percent. But in Frankfurt Germany’s biggest bank, Deutsche Bank, posted surprisingly strong results, reporting a first quarter net profit of $1.56bn.
Nevertheless, Deutsche Bank shares plunged 6.91 percent as investors took profits. Rival Commerzbank fell 2.67 percent. Airlines and tourism companies continued to suffer from prospects that the spreading swine flu virus could discourage global travel. Air France-KLM lost 1.88 percent and British Airways 5.36 percent. Hotel group Accor fell 4.70 percent while TUI Travel ended the day 3.62 percent in negative territory.
In London mining stocks tumbled as metals prices fell on worries about declining global economic growth. Anglo American was down 5.56 percent by the close of trade and Xstrata 6.08 percent. Earlier in Asian trade, the Tokyo stock market fell 2.67 percent in reaction to the spread of the flu outbreak.
Euro claws back
Meanwhile, the euro clawed back some lost ground against the dollar despite fears of a swine flu pandemic that were still encouraging demand for safe-haven currencies such as the dollar and the yen, analysts said.
The euro rose to $1.3061 compared to $1.3033 on Monday. The European single currency also gained against the Japanese yen, rising to 126.27 yen compared to 126.06 yen previously. The dollar meanwhile fell to 96.61 yen from 96.71 yen on Monday. The pound was at $1.4656 (1.4637). On the London Bullion Market, the price of gold fell to $891 an ounce from $907.50 an ounce on Monday.
