Saturday, October 18, 2008
European markets higher, Dow barely up (12:16 a.m.)
LONDON - European stock markets rose strongly Friday, while Wall Street was barely higher after U.S. housing data disappointed.
The FTSE 100 index of leading British shares was 196.95 points, or 5.1 percent, higher at 4,058.34, while Germany's DAX was up 159.11 points, or 3.4 percent, at 4,781.92. France's CAC-40 was up 130.56 points, or 4.1 percent, at 3,311.56.
Europe's indexes have been higher through the session in the wake of the Dow's strong performance Thursday and the recovery on Japan's
Nikkei.
The Dow Jones index in the U.S. was underperforming Europe's indexes, trading a bare 15.77 points, or 0.2 percent, higher at 8,995.03 after the Commerce Department reported that housing starts fell more than 6 percent in September to an annual rate of 817,000 units, a near 18-year low. That figure is lower than the 880,000 units forecast by Wall Street economists surveyed by Thomson/IFR.
Building permits also sank.
"It (the housing market) will recover but for the moment, it is in an appalling state," said Lombard Street Research analyst Gabriel Stein.
It's been an erratic week on Wall Street, with the Dow soaring 936 points on Monday, slipping moderately Tuesday, sinking 733 points Wednesday, and then rallying 401 points Thursday. The volatility is not providing investors with much relief, but it is a welcome change from last week's seemingly relentless plunge, during which the Dow logged its worst week ever and Wall Street lost about $2.4 trillion in shareholder wealth.
The long-term key to the health of financial markets is whether the flurry of activity by governments over the last week or so can actually break the logjam in credit markets.
There are growing signs that the coordinated interest rate reductions announced last week, and massive liquidity boosts by central banks, are beginning to reduce lending rates between banks.
The interbank lending rate for three-month dollar loans fell for the fifth day running, the first weekly decline in three months. It dropped 0.08 percent to 4.42 percent, while the three-month Euro Interbank Offered Rate, or Euribor, fell almost 0.045 percentage points to 5.045 percent.
Though the rates are falling, the differential between the rate at which banks lend to each other and official central bank lending rates remain high, signalling a strong degree of mistrust still exists. In the U.S. the base central bank rate is 1.5 percent, while in the euro area it stands at 3.75 percent.
"Ever so slowly, stress in the financial system appears to be receding," said John Higgs, analyst at Capital Economics.
"Now that policymakers have signalled their intent to prevent financial sector meltdown at any cost, interbank rates should continue to edge lower, if only at a snail's pace," he added.
Though the rescue packages have helped alleviate the pressures on the banking system, threats in the financial system remain, from credit default swaps - which insure against defaults on securities - from the insurance sector and from emerging markets.
Following the bailout of the banks, investor concerns have moved onto the insurance sector. Dutch bank and insurer ING Groep NV was the latest to suffer in the stock markets Friday on media reports that the company is in need of cash. Its shares were down 19 percent at euro8.20 (US$10.98).
Concerns about the global economic outlook have taken their toll on oil prices in recent days, which have fallen to near 14-month lows below US$70 before recovering slightly Friday to near US$71.
The fall in the price of oil has weighed on markets in Russia, where indexes continued their losing streak on Friday, with the MICEX dropping 4.3 percent and the RTS down 6.48 percent.
Earlier, Tokyo's Nikkei 225 stock average advanced 235.27 points, or 2.78 percent, at 8,693.82. The index was still far from recouping Thursday's 11.4 percent loss - its biggest one-day percentage drop since the stock market crash of October 1987. For the week, the Nikkei gained 5 percent, much better than the 24 percent it lost last week.
Compared to the gyrations earlier this week, Asian markets were moderately more stable.
Shanghai's index rose for the first time in a week. But Hong Kong's Hang Seng index dropped over 4 percent to 14,554.21, its lowest level in almost three years as selling accelerated late in the day after banks said they would help investors in Lehman Brothers-backed bonds recouped some of their money. Australia, Singapore and South Korea also closed lower.
Governments across Asia remained focused on the financial crisis.
Late Thursday, Malaysia said it would guarantee all bank deposits for the next two years, following similar moves by Hong Kong and Singapore amid fears about the health of banks.
In Australia, Prime Minister Kevin Rudd gave a reassurances that the country would pull through the crisis "in good shape. He said he would soon present a proposal in response to the crisis that would include a review of executive pay at financial institutions.
In currencies, the dollar declined slightly to 101.14 yen from 101.30 yen late Thursday. The euro was down at US$1.3450 from US$1.3492. (AP) |
