European markets' rally runs out of steam

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LONDON — European stocks gave up some of their recent gains Wednesday as investors remained cautious on a day Wall Street was closed for July 4 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 euro-zone 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.

“If the rally in equities is to last into this month and beyond, then the significant measures of economic strength, such as non-farm 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 today to reduce its main borrowing rate below 1 percent 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 today. The consensus view is that it will pump an additional 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 closed down 0.2 percent at 6,564.80 while the CAC-40 in France fell 0.1 percent to 3,267.75. The FTSE 100 index of leading British shares lost 0.1 percent to 5,684.47.

The Athens stock exchange bucked the trend, jump 4.9 percent, hopes that Greece’s new conservative-led government will ease the effects of a major recession on business.

Prime Minister Antonis Samaras’ government will in two days issue its first major policy statement on how it intends to deal with the country’s crushing debt crisis. International debt inspectors are in Athens to examine the country’s finances. Based on that report, Greece and its fellow eurozone countries will discuss if and how to ease the country’s pace of austerity measures.

The euro was down 0.6 percent at $1.2536.

Earlier in Asia, stocks end-
ed mostly higher. Japan’s Nikkei 225 index rose 0.4 percent to 9,104.17, and South Korea’s Kospi gained 0.4 percent to 1,874.45.

OIL PRICES FALL

The price of oil slipped to near $87 a barrel Wednesday, giving back some of the large gains from the previous day amid growing tension between Iran and Western powers.

By early afternoon in Europe, benchmark oil for August delivery was down 60 cents at $87.06 a barrel in electronic trading on the New York Mercantile Exchange. Trading volume was light because markets in the U.S. were open for only a half-day Tuesday and were closed Wednesday for the Independence Day holiday.

– Associated Press


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