European stocks take breather as gold hits record

by Pan Pylas
Wednesday Dec 2, 2009
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European stock markets took a breather Wednesday following big gains the previous day as investors awaited key economic news out of the U.S. Meanwhile, gold struck another new record high as the dollar remained weak.

In Europe, the FTSE 100 index of leading British shares was down 9.10 points, or 0.2 percent, at 5,303.07 while Germany’s DAX fell just over a point to 5,775.35. The CAC-40 in France was 3.28 points, or 0.1 percent, higher at 3,779.02.

Wall Street was also poised to open steady after a solid advance on Tuesday - Dow futures were down 5 points, or 0.1 percent, at 10,456 while the broader Standard & Poor’s 500 futures fell 0.4 point to 1,108.

Markets are awaiting a raft of economic news over the coming couple of days, including Thursday’s monetary policy meeting of the European Central Bank and Friday’s U.S. nonfarm payrolls report for November - the jobs data often set the tone in the markets for a week or two.

If over the week investors conclude that the U.S. economy is losing steam, then that could well pave the way for an end of year bout of profit-taking following an eight-month bull run.

The main piece of economic data Wednesday will be the monthly U.S. jobs survey from the ADP payrolls firm - markets take a close look at the data to see if they have to revise their expectations for Friday’s official government report.

At the moment, the consensus in the markets is that November payrolls fell by around 120,000 but the unemployment rate held steady at a 26-year high of 10.2 percent.

So far this week, investor jitters related to Dubai’s debt problems have calmed down amid hopes that Dubai World, the government investment company, will have around $26 billion worth of its debts restructured. Last week, the company - with a total of $60 billion worth of debt - sent shockwaves around global financial markets when it said it was looking to postpone forthcoming debt payments until May.

The hope in the markets is that the fear of contagion that gripped investors last week will not materialize.

Earlier, Asian stocks powered ahead as they responded to the continuing recovery in Europe and the U.S. On Tuesday, stocks were helped by an easing of tensions related to Dubai’s debt problems and further encouraging U.S. economic data, particularly from the housing sector.

Tokyo shares closed nearly 1 percent higher as investors gave a muted thumbs-up to the Bank of Japan’s new measures to offer cheap loans to commercial banks. The Nikkei 225 stock average was up 36.74 points, or 0.4 percent, at 9,608.94.

Hong Kong’s Hang Seng gained 176.42, or 0.8 percent, to 22,289.57 and South Korea’s Kospi jumped 21.91 points, or 1.4 percent, to 1,591.63. Australia’s benchmark advanced 0.9 percent and China’s Shanghai index climbed 1.1 percent.

Oil prices hung above $78 after a big jump overnight while gold, which Tuesday broke above $1,200 an ounce surged to a new record of $1,218.40. By early afternoon London time, oil was trading 57 cents lower at $77.80 while gold was up 0.9 percent on the day at $1,211.30.

Commodity and energy prices are mostly priced in gold so invariably strengthen when the dollar is on the retreat, particularly against the euro.

By early afternoon London time, the dollar was up 0.5 percent on the day at 87.18 yen while the euro was steady at $1.5084.

Currency traders are on the lookout to see if the euro can push back up towards last week’s 16-month high of $1.5144. If it does so, then it could start to target its all-time highs above $1.60.

"There is potential in the short term for some further upside but with the European Central Bank meeting this week, there is bound to be some concern about the high level of the euro with respect to European exporters and this could weigh," said Michael Hewson, an analyst at CMC Markets.

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