Weak earnings weigh on shares

Thu, Jul 26, 2012, 01:00

European shares and the euro edged lower today, as weak corporate earnings reports highlighted the growing impact of the debt crisis in Europe, but moves were limited on talk that central banks could be prompted into action.

Both the US Federal Reserve and the European Central Bank hold policy meetings next week, heightening speculation over what policies they could use to deal with a slowing world economy and the growing problems of Greece, Spain and Italy.

"We remain gloomy on the euro crisis," Citi economists said in a report as they raised the likelihood of Greece leaving the euro zone in the next 12-18 months to 90 per cent from a 50-75 per cent chance previously.

The single currency eased 0.1 per cent to $1.2141, but was clear of a two-year low of $1.2042 set earlier in the week.

The FTSEurofirst 300 index was down 0.1 per cent at 1,017.14 in early trading after German engineering conglomerate Siemens posted a 23 per cent drop in quarterly new orders. Oil major Royal Dutch Shell also missed forecasts.

Asian shares earlier rose as hopes grew for more US stimulus to support growth and new European measures to contain the euro zone's debt woes, but sentiment remained frail.

MSCI's broadest index of Asia-Pacific shares outside Japan , which fell the last four sessions, was up 0.6 per cent at 401.95. The index hit a one-month low of 397.44 yesterday, but despite daily swings, its downside has been recovering from 2012 lows of 379.17 hit in early June.

Korean shares rebounded from lows for the year hit yesterday, climbing 0.8 per cent, while Shanghai shares also managed a 0.3 per cent gain after closing at their lowest since March 2009 yesterday.

Japan's Nikkei gained 0.8 per cent after touching a seven-week low yesterday. Data showing new US home sales in June posted their biggest drop in more than a year and prices resumed their downward trend reinforced views the US Federal Reserve would consider more easing steps to underpin a delicate recovery.

"It feels as though risk assets will probably have reasonable support, given central bankers may be warming to further action, and this leads us into next week where the FOMC and ECB meet," said Chris Weston, a dealer at IG Markets in Melbourne.


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