European stock markets traded in a narrow range Monday as expectations of a rebound on Wall Street helped limit ongoing fallout from President Barack Obama’s plan to curb bank risk-taking.
The FTSE 100 index of leading 100 shares was up 16.60 points, or 0.3 percent, at 5,319.59 while Germany’s DAX fell 14.34 points, or 0.3 percent, to 5,680.98. The CAC-40 in France was 7.54 points, or 0.2 percent, lower at 3,813.24.
Wall Street was poised to recoup some of Friday’s big losses — Dow futures rose 78 points, or 0.8 percent, at 10,229 while the broader Standard & Poor’s 500 futures rose 9.2 points, or 0.8 percent, at 1,100.20.
Stocks have been on the retreat since last Wednesday, when Obama announced his intention to limit the size of U.S. banks and imposing restrictions on their more risky trading activities.
In essence, his proposals may mean the break-up of some of the U.S. banks but the details need to be ironed out between the White House and lawmakers in Congress — at a time when the economic recovery is far from assured and Obama’s Democrats face a rejuvenated Republican Party in midterm elections later in the year.
“The uncertainty surrounding the detail of the reforms is making the markets extremely nervous,” said Robert Pike, a trader at Spreadex.
There’s now growing talk in the markets that the President’s plan may have brought an end to the ten-month bull run in equities, which has seen most of the world’s main indexes recover all their losses since the collapse of Lehman Brothers in September 2008.
A mixed start to the fourth-quarter U.S. corporate earnings season and apparently rising opposition to U.S. Federal Reserve Chairman Ben Bernanke’s reappointment are also weighing on sentiment.
A raft of economic news this week is also likely to keep investors on edge. While Bernanke awaits a Senate vote, he will be sitting down with his colleagues on the Federal Open Market Committee on Tuesday and Wednesday to assess the latest batch of information surrounding the U.S. economy.
Though the Fed is expected to keep its benchmark interest rate unchanged at a range between zero and 0.25 percent, investors will be particularly interested to see the accompanying statement and especially if there’s continued support for keeping borrowing costs “exceptionally low and for an extended period.”
Neil Mackinnon, global macro strategist at VTB Capital, thinks that in the absence of any deterioration in inflation expectations, “there is no need for the Fed to signal an early policy change to the markets especially when markets are currently unsettled.”
It’s also a busy week in Europe — Tuesday could be particularly important with figures set to confirm that Britain finally emerged from recession in the fourth quarter of 2009. The monthly business confidence survey from the well-respected Ifo Institute will also be closely monitored given a mixed batch of European economic data recently.
The inconsistency of recent data was underlined by figures earlier from the EU’s statistics office, Eurostat, that industrial orders in the 16 countries that use the euro rebounded by a sharper than expected 2.7 percent in November from the previous month.
Analysts said interest rate decisions from the central banks of India, Brazil, Hungary and New Zealand could also impact on market sentiment, while fears of contagion from Greece’s debt troubles are unlikely to go away.
In Asia, investors already on edge about China’s economy and moves to prevent its overheating were further unnerved after Bank of China said it would seek to raise billions of dollars by issuing new equity and bonds. The move, designed to help the country’s third-biggest lender to replenish its capital and meet government standards, added to concerns about banks after a flood of lending to prop up the economy.
Clive McDonnell, head of Asia strategy at BNP Paribas Securities, said the markets could trade lower for now unless Chinese policymakers expressed new confidence in the country’s growth or the U.S. clarified its banking proposal to calm investors. Still, he expected markets to bounce back.
“Sentiment is fairly poor at the moment,” said McDonnell, who is based in Singapore. “But I don’t see any of the fundamentals have changed whatsoever and I don’t think (stock) valuations are overly expensive. In our view, the markets are going to remain strong in 2010.”
Earlier in Asia, Japan’s Nikkei 225 stock average fell 77.86 points, or 0.7 percent, to 10,512.69, and Hong Kong’s Hang Seng fell 127.63 points, or 0.6 percent, to 20,598.55.
Elsewhere, South Korea’s market dropped 14.15 points, or 0.8 percent, to 1,670.20. China’s Shanghai index lost 1.1 percent, Australia’s market was down 0.7 percent.
Oil prices lingered below $75 a barrel, with benchmark crude for March delivery down 7 cents to $74.47 a barrel. The contract lost $1.54 to settle at $74.54 on Friday.
The dollar was down 0.1 percent at 90.24 yen while the euro was up 0.2 percent at $1.4193.
AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.
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