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Bank Stocks Decline in Europe

European stocks slipped Tuesday, as concerns regarding the general health of global economies and fears emanating out of Asia regarding the bank sector hit sentiment, prompting a decline in oil prices while giving less risky asset classes a boost…

Bank Stocks Decline in Europe


European stocks slipped Tuesday, as concerns regarding the general health of global economies and fears emanating out of Asia regarding the bank sector hit sentiment, prompting a decline in oil prices while giving less risky asset classes a boost.

 The slide in European shares followed a decline in Chinese stocks. The country's banking regulator warned about capital positions, prompting concerns that lenders may have to sell shares to raise capital. In the U.S., selling continued, albeit more mutedly than in Asia or Europe. The Dow Jones Industrial Average closed down 17.24 points, or 0.2%, at 10433.71.

Meanwhile, gold edged up to another record-high close in U.S. trading. Gold for November delivery on the Comex division of the New York Mercantile Exchange rose $1.20 an ounce to $1,165.50. Analysts maintained that it could reach $1,200 in the next few days, spurred by currency fears and general concerns about the global economic climate.

On Wednesday, stock trading volume is expected to diminish ahead of Thursday's U.S. Thanksgiving holiday. A cavalcade of U.S. data will greet the session, including weekly jobless claims, durable-goods orders, consumer sentiment and new home sales. Elsewhere, the U.K. will release revised third-quarter growth figures and Japan will release provisional trade for the first part of November.

Tuesday in Europe, banking woes included news that state-controlled WestLB is negotiating with the German government about offloading assets from its balance sheet into a «bad bank» type model. The combination of negative news sent financial-sector stocks lower, with the Stoxx Europe banks sub-sector declining 1.4% Tuesday. UBS fell 2% in Zurich and Allied Irish Banks declined 3.7% in Dublin.

The downturn in stocks was part of a broad reversal of Monday's market action. Bonds, along with the dollar and yen, received a small lift while stocks defined as «defensive," such as pharmaceuticals, utilities and food producers, showed some gains.

Patrick Moonen, senior equities strategist at ING Investment Management, thinks defensive sectors will play a key role heading into 2010. Next year „ we are likely to see a change in sector leadership away from cyclicals," he said. «The recovery trade will broaden towards more defensive sectors.“

Mr. Moonen said health-care and telecommunications shares offer the most attractive valuations, while investors should be cautious of the consumer discretionary sector because consumers continue to face headwinds in the form of poor personal balance sheets and a tough job market.

In equity markets, the pan-European Stoxx 600 Index closed down 0.6% at 246.88. London's FTSE 100 declined 0.6% to 5323.96, Frankfurt's DAX fell 0.6% to 5769.31, and Paris's CAC-40 finished 0.7% lower at 3784.62. In Asian equity markets, the Shanghai Composite shed 3.4%, after having risen 13 of the previous 16 sessions in November.

The European session was choppy, with a stronger-than-expected jump in November business confidence in Germany offering some support. However, an update of U.S. gross-domestic-product figures disappointed investors. The Commerce Department revised third-quarter growth figures down to reflect lower consumer spending and a wider trade deficit.

The dollar and euro seesawed against each other in a narrow range. In afternoon New York trading, the euro was at $1.4964, down from $1.4968 late Monday. The U.K. pound was at $1.6576, down from $1.6619.

Meanwhile, crude for December delivery fell $1.54 to settle at $76.02 a barrel on Nymex, hurt by concerns over high inventories. Data due Wednesday from the U.S. Department of Energy are expected to show a rise in U.S. crude stocks, according to a Dow Jones Newswires survey of analysts.

European government bonds fared better than most other asset classes as investors chose to concentrate on less-risky areas. However, trading was lackluster. After the slew of U.S. economic data, December bund futures were up 0.19 at 122.63.

Among other major stock movers, Lloyds Banking Group rose 2.6% to 93.81 pence in London after launching the largest-ever rights issue, intended to raise Ј13.5 billion ($22.4 billion). The bank offered shareholders new shares at 37 pence apiece, a 60% discount from Monday's closing price.
 



Author: ANDREA TRYPHONIDES


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