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Europe: Stock markets retreat; London advances

Wednesday, March 18, 2015 - 07:13

[LONDON] The German and French stock markets fell on Tuesday, reversing strong gains won a day earlier, while the London index rose on the eve of Britain's budget announcement.

London's benchmark FTSE 100 index of top companies added 0.49 per cent to 6,837.61 points, with oil stocks gushing thanks to prospects for a tax break on oil exploration in the North Sea.

Meanwhile, Frankfurt's DAX 30 index slumped 1.54 per cent to 11,980.85 points after racing above 12,000 for the first time on Monday, with traders responding to German data that missed market expectations.

The CAC 40 in Paris shed 0.64 per cent to 5,028.93 points.

The euro climbed to US$1.0593 from US$1.0565 late in New York on Monday as disappointing US data has raised speculation that the US Federal Reserve may signal at the end of is policy meeting tomorrow that an interest rate hike may not come as soon as June as many market participants have been expecting.

The European single currency had started the week by falling to US$1.0458 - the lowest level for more than 12 years.

"European equity markets plunged in today's trading session, tracking sharp losses in the US markets as investors remained cautious ahead of any decisions coming out from the US Federal Reserve meeting," said Sucden Research analyst Myrto Sokou.

There was no support either from Wall Street, with all three main indices moving down following data showing a big drop in US housing starts.

The Dow Jones Industrial Average was down 0.77 per cent in midday trading, the broad-based S&P 500 shed 0.55 per cent while the tech-rich Nasdaq Composite Index fell 0.17 per cent.

GERMAN INDEX MISSES EXPECTATIONS

While investor sentiment in Germany rose for the fifth consecutive month to reach a 13-month high in March, the 54.8 points reading for the ZEW missed analysts' expectations for a more robust rise to 60.0 points.

"Profit-taking is weighing on the European indices... triggered by the release of the German ZEW Economic Sentiment index, which, at 54.8, came in below the expected reading," said Forex.com analyst Fawad Razaqzada.

"In addition, the euro is a touch firmer and given the single currency's recent negative correlation with European shares, this too is having some impact on the markets," he added.

European stock markets had rallied Monday on optimism over the ECB's fresh injection of stimulus across the eurozone, while the euro recovered after hitting another 12-year low versus the dollar.

Germany's leading stock market index smashed through the psychologically important 12,000-point level, one week after the European Central Bank began its 1.14-trillion-euro bond-buying QE programme that is aimed at stimulating growth and warding off deflation in the eurozone.

Investors are meanwhile keeping their focus on the US Federal Reserve's policy meeting Wednesday, seeking a clearer timeline for when it will raise interest rates as the world's biggest economy strengthens.

"The euro-dollar is likely to remain range bound until after the release of the (Fed) statement on Wednesday in which the Fed is likely to drop the word 'patient' used to describe the eventual first interest rate hike," said Mr Razaqzada.

"If the Fed is no longer 'patient', it may increase speculation that the central bank will increase interest rates by as early as June, and cause the dollar to rally."

Also Wednesday, Britain's coalition government presents its final budget before a knife-edge general election in May, with finance minister George Osborne vowing to stick to his economic plan with "no gimmicks".

But oil companies hurt by the plunge in crude prices are looking for help from the government in the budget to continue exploration in the North Sea.

"Major UK-listed oil companies including Tullow Oil, Royal Dutch Shell and BP rose despite a drop in the price of Brent crude oil on the prospect of a tax break in the UK budget for North Sea explorers," said analyst Jasper Lawler at CMC Markets.

Shares in Tullow Oil shot up 6.1 per cent to 298.40 pence, while Royal Dutch Shell gained 2.0 percent to 1,975 pence and BP climbed 2.0 per cent to 425.90 pence.

AFP