European, US markets sink on more bank worries
European, US markets lower as investors book profits, doubts emerge over banks' profit reports
Louise Watt, Associated Press Writer
Monday April 20, 2009, 12:21 pm EDT
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LONDON (AP) -- European and U.S. markets sank Monday as investors booked profits from last week's gains and new worries set in over banks' profit reports.
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{"s" : "bac,c,gs,hal,java","k" : "c10,l10,p20,t10","o" : "","j" : ""} Britain's FTSE 100 closed down 2.7 percent at 3,982.82, Germany's DAX fell 4.1 percent to 4,485.75 and France's CAC 40 faltered 4.1 percent to 2,965.58.
In midday trading in New York, the Dow Jones industrial average index slipped 2.7 percent to 7,910.94 and Standard & Poor's 500 lost 3.2 percent to 841.86.
Worries about the financial industry overshadowed Oracle Corp.'s announcement that it would acquire Sun Microsystems Inc. for $7.4 billion and a $6 billion bid by PepsiCo Inc. to buy its two biggest bottlers.
Markets were encouraged last week by upbeat reports from U.S. banks Citigroup Inc., JPMorgan Chase & Co., Wells Fargo & Co. and Goldman Sachs Group Inc., although investors know that difficulties in the banking sector remain.
But Joe Saluzzi, co-head of equity trading at Themis Trading LLC in New Jersey, said traders are now viewing bank earnings with more skepticism amid concerns that even the better-than-expected results are disguising problems. Income from trading and low-cost borrowing rates have boosted results -- but have not erased more difficult problems with bad debt, he said.
"They're looking at bank numbers and are saying they are not that great," Saluzzi said.
Financial stocks, along with mining and oil companies, dragged on European indexes Monday.
After initially rising, troubled banking giant UBS AG's share price fell 4.7 percent after it sold its Brazilian business for about $2.5 billion to BTG Investments in an effort to reduce risk and streamline its operations.
Investors are also awaiting results this week that could test a growing belief that the world economy and banking system have turned a corner. Among the hundreds of U.S. companies due to report are Coca-Cola, Microsoft, IBM and McDonald's. Bank of America Corp. said before the U.S. market opened Monday that it earned a surprise profit in the first quarter, but that it also set aside $13.4 billion to cover losses on souring debt.
Meanwhile, oilfield services company Halliburton Co. said its first-quarter earnings fell 35 percent as oil and natural gas producers cut back on exploration and drilling because of low prices.
The Oracle-Sun deal provided a positive note, along with the announcement by British drug maker GlaxoSmithKline that it will pay $2.9 billion to buy American dermatology business Stiefel Laboratories Inc.
"Obviously it comes as a piece of good news in that there is a lot of M&A going on in the background," said Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers in London.
Bowman said the deals "may just strengthen investor sentiment a little bit."
In Asia, markets were modestly higher, led by Hong Kong and Shanghai stocks after Chinese Premier Wen Jiabao said Saturday the economy was faring "better than expected" as a massive stimulus package produces results.
Coupled with more pledges to pull the economy out its slump, the comments from Wen gave investors more reason to hope China will heal faster and help both Asian and overseas markets along the way.
With a number of markets already up more than 20 percent in less than two months, many are becoming wary of another bubble in the making and say any negative surprises could cause a bout of selling.
"Equities markets are beginning to be quite detached from the underlying economic fundamentals -- once again," said Kirby Daley, senior strategist at Newedge Group in Hong Kong. "The worst is far from over."
Japan's Nikkei 225 stock average recouped morning losses to rise 17.17 points, or 0.2 percent, to 8,924.75 while South Korea also made up lost ground, rising 0.6 percent to 1,336.39. Taiwan's market was higher, though markets in Australia and Singapore retreated.
In China, Shanghai's key index added 2.1 percent to 2,557.46 while Hong Kong's Hang Seng climbed 1 percent to 15,750.91. Wen said the economy appeared to be bouncing back, with industrial output, consumer spending and factory investment on the rise.
"China's package plan is already paying off and positive changes have taken place in the economy," Wen said Saturday at a forum in China. "The situation is better than expected."
Gains in Japan's broader market were capped by losses by several companies, including Toshiba. The giant chipmaker -- which projected a wider-than-expected fiscal-year loss, warned of contract job cuts and may need to raise fresh capital -- dropped 4.8 percent.
Crude oil for May delivery fell $4.03 to $46.30 a barrel in European trade. The contract rose 35 cents Friday to settle at $50.33.
AP business writers Tim Paradis in New York and Jeremiah Marquez in Hong Kong contributed to this report.
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