European Stocks Rise Past Debt Fears on Bargain-Hunting
European markets rebounded Monday as investors looked past a slump in Asia and set aside worries about debt problems in countries like Greece and Portugal to buy into stocks made cheaper by last week’s vicious sell-off.
Sentiment remains balanced on a knife’s edge, however, with hope for a bailout for Greece weighed against fears of contagion through the wider 16-nation eurozone.
In Europe, Britain’s FTSE 100 benchmark index was up 1 percent at 5,113.31, while Germany’s DAX rose 1.1 percent to 5,494.78. France’s CAC 40 gained 1.3 percent to 3,610.02.
Asian markets closed lower, as they caught up with Friday’s sell-off, whereas Wall Street was expected to recover some ground on the open. Dow industrials average futures were up 49 points at 9,990.00 and Standard & Poor’s 500 futures were up 3.5 points at 1,063.30.
The fears about unsustainable government debt in several European countries have rattled global financial markets since early this year. Those concerns intensified last week, undermining the euro, after Portugal’s lawmakers defeated the government over its deficit reduction plan.
However, a surprise drop in the U.S. unemployment rate Friday tempered losses on Wall Street, and investors mustered the courage to go bargain hunting on Monday.
Despite a lack of commitment to a bailout from the European Union or any concrete rescue plans from policy makers at the G-7 meeting of finance ministers in Canada this weekend, experts said countries like Greece or Portugal were unlikely to be stranded or allowed to default.
“A solution for Greece will be found, either from within the country or from the wider eurozone,” said Daragh Maher, analyst at Calyon.
“On a number of fronts the pessimism looks overdone, notably in relation to the performance of the global economy.”
The drop in the U.S. unemployment rate on Friday boosted belief in the recovery in the world’s largest economy and echoed other encouraging, though timid, signs of growth in emerging markets and Europe itself.
However, analysts say that with little in the way of scheduled economic or corporate news on Monday, market sentiment may yet prove fickle.
European policy makers will have to come up with more concrete answers about how they will keep Greece from defaulting if they are to avoid another dive in the markets, but such answers were not given at the G-7 meeting in Iqaluit, Canada.
Rather, top finance officials merely expressed their confidence in European governments to sort out their public deficits without the need of a bailout from the International Monetary Fund. They reiterated commitments to keep stimulus measures in place and the need for financial regulation reform.
“In the end, we have a battle between those riding the momentum and those who believe we are witnessing an overshoot of pessimism,” said Maher.
In Asia, Japan’s Nikkei 225 closed at a nearly two-month low, falling 1.1 percent to 9,951.82 to reflect the heavier losses on Wall Street on Friday.
Shares in Toyota Motor Corp. rebounded earlier in the day, after the company’s president Akio Toyoda apologized late Friday for the crisis over massive recalls due to safety problems in some of its most popular models. But they later fell back, shedding 0.9 percent.
Chinese shares also dropped, but trading was listless, with investors keeping to the sidelines ahead of a weeklong Lunar New Year holiday, which begins Saturday. The Shanghai Composite Index lost 0.3 percent to close at 2,935.17, led by declines in banks and other financial companies.
Hong Kong’s Hang Seng index fell 0.6 percent to 19,550.89 and South Korea’s Kospi dropped 0.9 percent to 1,552.79.
Elsewhere, shares were lower in Indonesia, Malaysia, New Zealand and the Philippines but rose in Singapore, Taiwan and in Australia, where strength in commodities prices boosted shares in resource companies.
The Dow Jones industrial average closed 0.5 percent lower at 10,012.23 last week. The Standard & Poor’s 500 index fell 0.7 percent to 1,066.19.
Oil rose to near $72 a barrel in Europe, boosted by tensions over Iran’s nuclear program and persistently cold weather in the U.S. northeast. Benchmark crude for March delivery was up $0.65 to $71.84 a barrel in electronic trading on the New York Mercantile Exchange.
In currencies, the dollar reversed losses to steady at 89.43 yen. The euro rose to $1.3692 from $1.3664 late Friday.
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AP Business Writer Elaine Kurtenbach in Shanghai contributed to this report.
2/8/2010 5:56 AM CARLO PIOVANO, AP Business Writer LONDON