Wednesday, Apr 18, 2012

--Stocks fall on risk reduction before Spanish bond auction

--IMF's boost to world growth forecast shrugged off

--Worries about economic deterioration in Spain and Italy weigh

--BOE minutes dash QE hopes; UK jobs data better than expected 


 
   By Ishaq Siddiqi 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--European stock markets fell Wednesday as investors reduced exposure to risk ahead of Thursday's Spanish bond auction, despite the International Monetary Fund's upward revision of its world gross domestic product growth forecast.

Investors look to be in a dilemma, said Mike McCudden, head of derivatives at Interactive Investor, noting that Tuesday's market rally was built on thin volume. "In the face of a longer dated Spanish bond auction Thursday, only the brave would consider entering the market at the current level," said McCudden.

He added that investors are poised for a rollercoaster ride Wednesday, with the day-to-day updates and speculation stemming from the euro zone leading the moves. "With the traditional month for selling around the corner, it would come as no surprise if the investors stay clear."

By 0900 GMT, the benchmark Stoxx Europe 600 index lost 0.4% to 258.46. London's FTSE 100 index was down 0.2% at 5754.78, Frankfurt's DAX was down 0.5% at 6763.69, and Paris's CAC-40 index fell 0.9% to 3262.20. Spain's IBEX-35 fell 2.3%, while Italy's FTSE MIB index lost 1.6%.

Earlier, the IMF lifted spirits across markets after revising global economic growth for 2012 to 3.5%, from its previous forecast of 3.3%. Ahead of IMF and World Bank meetings in Washington this week, several nations pledged to send funds to the IMF to boost its financial war chest.

Three Nordic countries--Denmark, Norway and Sweden--Tuesday promised a combined $26 billion on top of Japan's $60 billion commitment. And, in an interview with Dow Jones Newswires and The Wall Street Journal, Australia's Deputy Prime Minister and Treasurer Wayne Swan said the country is ready to help strengthen the IMF's war chest but needs to see a firm commitment from Europe's leaders to tackle the region's debt crisis.

IMF Managing Director Christine Lagarde's policy is to roughly double the fund's available lending capacity, currently about $380 billion. Europe had already pledged $200 billion.

Worries over Spain and Italy are likely to weigh on markets in the months ahead. On Tuesday, the Bank of Spain said commercial banks have notified they need EUR29.08 billion worth of extra provisions and EUR15.57 billion worth of core capital.

And, data released Wednesday showed that the country's February bad loans ratio rose to 8.16% compared with 7.91% in January. Meanwhile, reports suggested that the Italian government will delay its plan to reach a balanced budget in 2013 by a year due to a weaker economic outlook.

In corporate news, the Spanish government threatened to retaliate in response to Argentina's proposed seizure of a prized unit of Spain's flagship oil company Repsol YPF. Spain's rebuke came after Argentina proposed nationalizing its largest oil-and-gas company, YPF SA. Argentina proposed taking 51% of YPF from Spain's Repsol YPF SA at a price that is yet to be determined, leaving the Spanish company with a 6% stake. Repsol shares fell 1.4% on Wednesday.

Elsewhere, food retailer Tesco rose 1.6%, after saying it will invest GBP1 billion in its ailing U.K. operations over the coming year and cut new openings by more than a third as the U.K.'s biggest retailer reported a slight rise in full-year net profit. Resource companies Fresnillo and BHP Billiton production results also pleased the market, with shares in both companies up 2.9% and 1.2% respectively.

Dutch brewer Heineken shares added 3.7%, after it reaffirmed its 2012 growth outlook, as it reported a rise in first-quarter net profit. But semiconductor equipment maker ASML Holding shares lost 2.9%, after posting a fall in net profit for the first quarter of 2012.

In foreign exchange markets, the yen lost ground as investors abandoned the safety of the Japanese currency amid the upbeat mood. The euro was steady against the U.S. dollar as the focus turned to Thursday's Spanish bond auctions. Data from the euro zone showed the region's current account swung from a surplus to a deficit in February. The current account shifted to a deficit of EUR1.3 billion in February from a downwardly revised surplus of EUR3.7 billion in January.

By 0855 GMT, the single currency was at $1.3126, from $1.3125 late Tuesday in New York, and at Y106.76, from Y106.04. The dollar was at Y81.54, from Y80.85. The U.K. pound was higher against the dollar after the release of the Bank of England's meeting minutes. The pound was fetching at $1.5985 from $1.5940.

The BOE's Monetary Policy Committee voted 8-1 to hold the size of its asset-purchase program, the centerpiece of its quantitative-easing strategy, at GBP325 billion at their monthly policy meeting earlier this month. Jobs data showed U.K. employment up 53,000 and unemployment down 35,000 in the latest three months, which traders described as better than expected. The unemployment rate was at 8.3%.

Earlier, Sweden's central bank brought a series of interest rate cuts to a halt Wednesday saying it had seen signs that the outlook for the domestic economy has improved. The Riksbank left its main repurchase, or repo rate, at 1.50%, as the majority of economists surveyed by Dow Jones Newswires had expected.

Amongst commodities, spot gold was at $1,647.80 a troy ounce, down $2.40 from its New York settlement on Tuesday. May Nymex crude oil futures were up 15 cents at $104.35 per barrel and June Brent oil futures were off $0.36 at $118.42. In the bond market, the June bund contract was down two ticks at 139.94.

-By Ishaq Siddiqi, Dow Jones Newswires; +44-20-7842-9488; ishaq.siddiqi@dowjones.com

(END) Dow Jones Newswires

April 18, 2012 05:34 ET (09:34 GMT)