Euro down on oil spike

Wed, 07 May 2008

European stock markets closed mostly lower on Tuesday, hit by another spike in oil prices to record highs and corporate results highlighting the damage done by the US sub-prime home loan crisis.

Dealers said bad news from Swiss banking giant UBS, which warned of up to 5500 more job cuts as it grapples with massive sub-prime losses, dented sentiment.

Disappointing results from Swiss Re, the world's largest reinsurance company, as it counted the cost of the credit market problems, added to the negative tone.

Dealers said the sharp jump in oil to a record 122 dollars in late afternoon trade was unwelcome since prices had fallen back recently, suggesting the momentum had been checked.

Analyst commentary that prices could go to 150 or even 200 dollars within a year or so had raised inflation concerns and the latest price gains suggested that those forecasts might not be too extravagant.

In London, the FTSE 100 was virtually flat at 6215.20 points as investors returned from a long holiday weekend.

In Paris, the Cac 40 fell 0.44 percent to 5040.92 points and in Frankfurt the Dax was down 0.50 percent to 7017.10 points.

The Euro Stoxx 50 index of leading eurozone shares was off 0.50 percent.

The European single currency stood at 1.5553 dollars.

On Wall Street, the Dow Jones Industrial Average was down 0.16 percent at about 4.00pm GMT, coming off early lows after sentiment was unsettled by the latest jump in oil prices and worse-than-expected results from Fannie Mae, the mortgage group.

"An ugly earnings report from Fannie Mae" caused some concerns, said Patrick O'Hare at Briefing.com.

"Oil prices and corporate headlines will be the main drivers of the trading action," he added.

Fred Dickson at DA Davidson said the stock market may be overextended after three weeks of gains.

"The market appears to be consolidating recent trends in stock prices, commodity prices and currencies," he said. "With the earnings season winding down, the flow of market catalysts normally begins to subside."

In Europe, dealers said the price of oil sparked some unease as it went hand in hand with a reverse in some of the dollar's recent gains. With the euro picking up again, eurozone exporters were at a disadvantage.

In London, oil-dependent companies were in the firing line, with British Airways down 3.92 percent at 239 pence as poor April traffic figures compounded the problem.

Among the miners, Rio Tinto jumped 4.06 percent to 6354 pence and BHP Billiton climbed 3.84 percent to 1948 pence.

Lloyds TSB fell 2.98 percent to 439 pence among the banks.

In Paris, dealers said that despite the loss on the day, support at 5,000 points was holding firm and that was a good sign for the future.

"The fall was to be expected but the market nonetheless has shown unusual resilience in the face of bad news" on oil and corporate results, said one dealer.

Among the banks, BNP Paribas lost 1.20 percent to 70.19 euros and Societe Generale was down 2.61 percent to 76.40 euros.

EADS, the European aerospace giant, was down 1.59 percent at 16.12 euros after the head of its Airbus unit did not rule out more delays on its flagship A380 superjumbo.

EADS had lost 3.82 percent on Monday after reports of delays.

In Frankfurt, Adidas jumped 5.69 percent to 42.70 euros on its strong results but Hypo Real Estate was down 3.51 percent at 22.85 euros after the mortgage lender's first quarter figures disappointed.

Elsewhere in Europe, the Bel-20 in Belgium was down 1.36 percent, Madrid's Ibex-35 fell 0.48 percent, Italy's Mib-30 lost 0.45 percent, the AEX in Amsterdam slipped 0.15 percent and the Swiss Market Index shed 1.50 percent.

In Asia, markets were mostly lower too on concerns over the fresh rise in oil prices. Hong Kong shares rose 0.3 percent but Sydney was down 0.5 percent. Tokyo was closed for a public holiday.