European markets fall on debt fears

EUROPEAN STOCK markets failed to capitalise on early gains yesterday, after positive employment figures from the US gave a lift to markets as the first week of trading for 2012 came to a close.

Data showed that US employment growth accelerated last month and the jobless rate dropped to a near three-year low of 8.5 per cent, offering the strongest evidence yet that the economic recovery was gaining steam.

Non-farm payrolls increased 200,000 in December, the Labor Department said. It was the biggest rise in three months and beat economists’ expectations for a 150,000 gain.

The unemployment rate dropped from a revised 8.7 per cent in November to its lowest level since February 2009.

News that Fitch Ratings cut Hungary’s rating to junk status, the third company in two months to do so, weighed on markets however.

EUROPE

European stocks were little changed, with the Stoxx Europe 600 Index completing its third straight weekly gain.

However, Germany’s DAX Index slipped 0.6 per cent and France’s CAC 40 retreated 0.2 per cent. The UK’s FTSE 100 Index rose 0.5 per cent. Markets were closed in Greece, Finland, Sweden and Austria for a holiday.

Italian bank UniCredit sank 11 per cent, bringing its three-day plunge to 37 per cent as it was forced to deeply discount a planned one-for-one equity rights issue.

Vodafone, the world’s largest mobile-phone operator, climbed 1.9 per cent after Goldman Sachs advised buying the shares. Mitchells and Butlers, the Birmingham-based pub owner, jumped 4.5 per cent after Morgan Stanley recommended the stock.

European stock markets awaited Monday’s meeting between German chancellor Angela Merkel and French president Nicolas Sarkozy, the first major meeting on the European debt crisis of 2012.

DUBLIN

In Dublin, the Iseq finished the day pretty much flat after a morning rally was corrected in afternoon trading. Activity was minimal on the exchange.

Food stocks performed well, with Glanbia advancing 2.8 per cent, boosted by strong commodity prices. Greencore and CC also ended the session in positive territory.

Exploration stocks benefited from the recent rally in oil prices, though oil prices did retreat yesterday.

Petroceltic gained almost 5 per cent, closing at €0.11, while Dragon Oil closed at €5.77, a gain of 2 per cent.

Financial stocks in Dublin lost ground, perhaps reflecting the activity in UniCredit over the last few days. However, banking stocks in the UK rebounded from recent losses, with Lloyds rising 0.8p to 27.1p and Barclays gaining 2.8p to finish at 186.4p.

EURO

The euro lost ground yesterday, with the pound reaching a 15-month high versus the euro, heading for a fifth weekly gain, as European confidence in the economy slid to a two-year low, fuelling concern that troubled nations will struggle to cut deficits.

The euro remained under pressure ahead of Italian and Spanish government bond sales next week, viewed as the year’s first big fundraising tests for struggling euro zone countries.

US

US Treasury debt prices rose after Federal Reserve Bank of New York president William Dudley said more monetary accommodation should be considered to help the housing sector and stimulate the country’s “frustratingly slow” economy.

The 30-year bond price gained 19/32, leaving its yield at 3.03 per cent. Benchmark 10-year notes rose 8/32, driving their yields back below 2 per cent at 1.97 per cent.

Mr Dudley told the New Jersey Bankers Association Economic Forum that the US unemployment outlook was still unacceptably high.

The December payrolls report provided a trading opportunity within the range but did not give the market new direction, said David Ader, CRT Capital’s head government bond strategist.

OIL

Oil slipped for a second day as speculation Europe is headed for a recession overshadowed concern that tensions with Iran may lead to a disruption in Middle East shipments. Futures decreased as much as 0.9 per cent as the euro dropped to the lowest level versus the dollar since September 2010.

Crude surged to the highest price in almost eight months this week after Iran threatened to block the Strait of Hormuz and European ministers discussed an embargo on oil imports from the country.

“The weaker euro is making people nervous and leading the market lower,” said Tom Bentz, a director with BNP Paribas Prime Brokerage in New York. “Iranian concerns aren’t on the front page today. It was worries about Iran that sent us higher earlier in the week.”

Spot gold prices fell $2.90, or 0.18 percent, to $1,619.50.

– (Additional Reporting: Reuters/Bloomberg)