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Markets ending week subdued despite strong data

By Pan Pylas

Associated Press

Published: Friday, May 13 2011 9:16 a.m. MDT

LONDON — Stock markets and the euro were hit Friday by a pre-weekend sell-off, as investors cashed in on gains made in the wake of robust economic growth figures for the eurozone.

Sentiment across financial markets has been volatile over the past weeks as investors fret about the state of the global economic recovery, the prospect of higher interest rates and a drop in commodity markets, particularly the price of silver. Meanwhile, Europe's debt crisis has flared up again and Greece is widely expected to require a second bailout soon.

"Markets continue to hesitate," said Herve Goulletquer, an analyst at Credit Agricole. "The data flow sends a contradictory message about the pace of growth and policymakers are having difficulty convincing the markets that they are making the right choice."

Those considerations have weighed on stocks markets, causing them to end the week with a whimper.

Earlier figures from Eurostat, the EU's statistics office, showed that the economy of the 17 countries that use the euro grew by a quarterly rate of 0.8 percent in the first three months of the year, supporting sentiment in Europe.

The quarterly growth rate was more than double the 0.3 percent growth posted in the previous three-month period, ahead of analysts' expectations for a 0.6 percent increase and double the rate of the U.S.

The outperformance was largely due to another stellar performance from Germany, which posted forecast-busting growth of 1.5 percent during the quarter. France, the eurozone's second largest economy, enjoyed strong growth of 1 percent and even debt-imperilled Greece saw its economy grow by 0.8 percent, though that was largely due to a rebound from a bigger than anticipated contraction in the previous quarter.

The improving picture was not uniform, though, as Portugal dropped back into recession. Last month, Portugal became the eurozone's third member after Greece and Ireland to request a financial bailout from its partners in the eurozone and the International Monetary Fund. Growth figures for Ireland are not yet available.

The figures had helped European markets post gains for most of the session until a retreat on Wall Street at the open prompted a retreat. In the larger European markets, Germany's DAX was down 0.4 percent at 7,419 while the CAC-40 in France fell 0.1 percent to 4,022. The FTSE 100 index of leading British shares remained in positive territory, but only just, trading 0.1 percent higher at 5,950.

The euro was trading 0.1 percent lower at $1.4223, having earlier traded as far as $1.4338 in the wake of the growth data. The figures had proved a welcome relief to the euro, which had lost about 8 cents to the dollar this week as investors scaled back expectations of interest rate increases and worried about Greece's debt troubles. Last week, it was near 18-months high above $1.49.

The solid growth figures had also shored up commodities after a recent big sell-off. In the oil markets, the benchmark rate of crude as traded in New York was unchanged at $98.97 a barrel.

Friday's statistics came ahead of a meeting of eurozone finance ministers on Monday, when the bailout of Portugal is expected to be agreed upon. More interest is likely to center on what the finance ministers say about Greece and whether it may need to get another bailout this summer.

"The eurozone authorities appear to be sticking to the 'kick-the-can-down-the-road' policy and the question then is how long can Germany and France record growth rates to offset the poor conditions in much of the other half of the eurozone economy," said Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ.

In the U.S., stocks fell despite figures showing a big rise in U.S. consumer confidence, though analysts said the better than expected figures from the University of Michigan may have been flattered by the death of al-Qaida leader Osama bin Laden.

The Dow Jones industrial average was down 0.1 percent at 12,687 while the broader Standard & Poor's 500 index was down an equivalent rate to 1,348.

Earlier, trading in Asia, trading in Japan was lackluster with the Nikkei 225 slipping 0.7 percent to close at 9,648.77 as the country's currency continued to gain ground against the dollar, posing yet another concern to earthquake-embattled exporters.

By early afternoon London time, the dollar was down 0.5 percent at 80.62 yen.

Hong Kong's Hang Seng fared better, closing 0.9 percent higher to 23,276.27, while Australia's S&P/ASX 200 gained 0.3 percent to 4,711.40.

Mainland Chinese shares also advanced, shrugging off yet another central bank increase in the reserve requirement for banks — the fifth such increase in 2011. That move came after the government announced inflation was at 5.3 percent in April, with food prices surging 11.5 percent.

The benchmark Shanghai Composite Index rose 1 percent to 2,871.03, while the Shenzhen Composite Index of China's smaller, second exchange added 0.5 percent to 1,201.37.

Pamela Sampson in Bangkok contributed to this report.

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