European Stock Rally Runs Out of Steam
LONDON -- European stocks gave up some of their recent gains Wednesday as investors remained cautious on a day Wall Street was closed for July Fourth celebrations and ahead of key economic news in coming days.
Markets have enjoyed one of their best three-day runs in months as investors cheered Friday's agreement by the leaders of the 17 euro countries to allow Europe's bailout fund to capitalize banks directly and to buy bonds of imperiled countries.
However, with the eurozone economy showing signs of heading back into recession, the crisis has the potential to flare up again. Mounting concerns over the state of the U.S. economic recovery are also keeping sentiment in check, especially ahead of Friday's closely watched nonfarm payrolls report for June. The payrolls data often set the market tone for a week or two after their release.
"If the rally in equities is to last into this month and beyond, then the significant measures of economic strength, such as nonfarm payrolls, must be seen to stabilize," said David White, a trader at Spreadex.
Before the payrolls data, markets have a couple of key central bank policy statements to digest, notably from the European Central Bank, which is expected on Thursday to reduce its main borrowing rate to less than 1% for the first time ever. A services sector survey Wednesday from financial information company Markit added to the prevailing view that the eurozone is heading back to recession.
The Bank of England is also expected to do more to help the British economy, which is already in recession, at its meeting on Thursday. The consensus view is that it will pump another 50 billion pounds into the economy.
"There is plenty of scope for disappointment given the high expectations, so traders will be cautious ahead of the meetings, and also as we approach nonfarm payrolls," said David Morrison, senior market strategist at GFT Markets.
In Europe, Germany's DAX was down 0.4% at 6,549 while the CAC-40 in France fell 0.5% to 3,255. The FTSE 100 index of leading British shares bucked the trend and was trading 0.1% higher at 5,693.
The euro was down 0.3% at $1.2561, while oil prices gave up some ground amid the softer tone in Europe -- benchmark oil for August delivery was down 52 cents at $87.14 a barrel in electronic trading on the New York Mercantile Exchange.
Earlier in Asia, stocks ended mostly higher. Japan's Nikkei 225 index rose 0.4% to 9,104.17 and South Korea's Kospi gained 0.4% to 1,874.45. China's Shanghai Composite fell 0.1% to 2,227.31 and Hong Kong's Hang Seng was down 0.1% at 19,709.75.