European, US stocks down as earnings loom

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Associated Press

Posted on October 9, 2009 at 10:42 AM

LONDON (AP) — European and U.S. stock markets fell modestly Wednesday after big gains the previous day as investors prepared for the start of the third-quarter corporate reporting season.

The FTSE 100 index of leading British shares closed down 29.08 points, or 0.6 percent, at 5,108.90 while Germany's DAX fell 16.89 points, or 0.3 percent, to 5,640.75. The CAC-40 in France was 13.8 points, or 0.4 percent, lower at 3,756.41.

On Wall Street, the Dow Jones industrial average was 24.19 points, or 0.3 percent, lower at 9,707.06 around midday New York time, while the broader Standard & Poor's 500 index fell was down less than a point at 1,054.36.

Following two days of hefty gains — the Dow gained 244 points, its best back-to-back gains since July — investors are gearing up for the third-quarter results season, which kicks off after the New York close with results from aluminum company Alcoa Inc., to see if the global recovery is gathering pace.

The second quarter earnings season was generally better than expected and helped fuel a big rise in share prices in July and August. However, the forecast-busting earnings were largely due to cost cutting measures which are unlikely to be repeated.

"Investors will be looking out for clearer signs of growth during the new U.S. company earnings window," said Anthony Grech, market strategist at IG Index.

On Tuesday, a surprise interest rate hike from Australia's central bank reassured investors that the global economic recovery was continuing. The Reserve Bank of Australia raised its benchmark interest rate by a quarter percentage point to 3.25 percent — the first hike by a major central bank in the current economic cycle.

Though other central banks are not expected to follow suit immediately, analysts said the Australian hike may be a sign that policymakers think the recovery from the deepest global recession since World War II is already well-entrenched.

On Thursday, the European Central Bank and the Bank of England announce their latest interest rate decisions.

Though both are expected to keep their benchmark rates at their respective record lows of 1 percent and 0.5 percent, investors will be interested to see any signs that they are becoming less gloomy about the economic prospects.

Earlier, major benchmarks in Asia were about 1 percent higher or more as investors rode the positive momentum from Tuesday.

Japan's Nikkei 225 stock average gained 107.80 points, or 1.1 percent, to 9,799.60, and Hong Kong's Hang Seng advanced 430.06 points, or 2.1 percent, to 21,241.59.

Australia's index jumped 2.3 percent and Singapore's index gained 0.9 percent. Taiwan's benchmark was up 1 percent. South Korea's market closed flat. Mainland China markets are closed for a weeklong holiday and reopen Friday.

Oil prices were higher, helped by the weak dollar and optimism that a global economic recovery would boost demand for crude. Benchmark crude for November delivery was changing hands at $71.08, up 20 cents from the prior session. The contract rose 47 cents overnight.

The dollar was up 0.2 percent at 88.90 yen while the euro fell 0.3 percent to $1.4680.

On Tuesday, the dollar was sold off fairly heavily after a British newspaper report said secret talks were taking place to replace the dollar as the currency for oil trading.

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Associated Press Writers Carlo Piovano in London and Jeremiah Marquez in Hong Kong contributed to this report.

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