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European Stocks Sneak Higher

Published: February 28, 2012 | 9:09 am
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LONDON—European stock markets opened slightly higher Tuesday, with investors encouraged by improving U.S. economic data, while crude-oil futures continue to ease after last week’s strong rally, providing some relief to worries about fresh headwinds for the global economy.

London’s FTSE 100 Index rose 0.1% at the open, the DAX in Frankfurt gained 0.2% and the CAC-40 Index in Paris was 0.3% higher.

Monday saw a stronger-than-expected increase in U.S. pending home sales for January and the parliamentary approval of German support for a second bailout package for Greece. Both of these developments helped investors to shrug off Monday’s downgrade by Standard & Poor’s of Greece to a selective default rating from triple-C.

“The market’s reaction was one of complete indifference [to the S&P move on Greece], such is the reality of life in this latest, but not unexpected twist in what has become the almost everyday routine of the European debt crisis,” said Michael Hewson, market analyst at CMC Markets. He said that after the success of the German vote it is the turn of the Finnish parliament to debate the bailout package followed by a vote Wednesday.

Also helping, oil prices have retreated from recent advances and provided some relief to investors worries about fresh headwinds for the global economy. “The pullback in oil prices will give some much-needed relief to investors who fear high oil prices will cripple the global economic recovery. Oil broke its seven-day winning streak but remains at nine-month highs,” said Stan Shamu, market strategist at IG Markets.

Still, many expect tensions in Iran, a driving force of crude’s rally, to subside. For now, April Nymex crude oil futures were recently down 21 cents at $108.35 a barrel, while April Brent oil futures were down 38 cents at $123.79.

In Asian markets Tuesday, Asian stock markets eked out modest gains Tuesday as upbeat U.S. data and a drop in crude prices lifted sentiment, but buyers lacked conviction and Japanese chip makers fell sharply after Elpida Memory’s bankruptcy filing. Financial stocks also underperformed across the region with the exception of Shanghai, after the China Securities Journal reported that China has allowed banks to continue to issue loans to fund local governments’ land purchases and road construction, in a bid to ease debt-servicing pressure on local governments.

Japan’s Nikkei Stock Average rose 0.9%, Australia’s S&P/ASX 200 was flat and South Korea’s Kospi Composite climbed 0.6%. Hong Kong’s Hang Seng Index gained 1.3%, while China’s Shanghai Composite was down 0.2%.

In the U.S. Monday, the Dow Jones Industrial Average edged lower, closing just below 13000. Encouraging reports on the domestic economy helped shares during the session, but weren’t enough to push blue chips into the black at the close. The Dow ended down 1.44 points, or less than 0.1%, to 12981.51, while the Standard & Poor’s 500-stock index rose 1.85 points, or 0.14%, to 1367.59.

In the currency markets, the euro struggled to make much headway as investors focused on the European Central Bank’s second long-term refinancing operation due on Wednesday. Many analysts are of the view that Europe’s economy will take some time to regain strong growth momentum.

“The bottom line is that the first LTRO may have eased funding pressures, averted a number of commercial bank failures, and prevented a catastrophic credit crunch from taking hold, but there is no evidence here that it has done enough to reanimate the credit channel that is so important to euro zone growth,” said Sydney-based Russell Jones, strategist at Westpac Bank.

The common currency was at $1.3438 from $1.3397 late Monday in New York, and at ¥107.58 from ¥108.33. The dollar retreated against the Japanese yen, falling to ¥80.59 from ¥80.60 on profit-taking following its recent surge, while Japanese exporters sold the greenback to settle their month-end trade deals.

Elsewhere, spot gold was at $1,772.70 a troy ounce, up $3.90 cents from its New York settlement on Monday. The March bund contract was down seven ticks at 139.67.

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