European stock markets lost ground yesterday after weaker-than-expected US housing data snuffed out an early rally.
Sentiment was also negatively affected after Moody’s said it had downgraded Irish debt by one notch to Aa2, citing weak growth prospects and the huge cost of rescuing banks.
Investors were unsettled by news that Hungary had failed to reach a deal over the weekend with the IMF and the European Union that would allow it to draw on the remainder of its existing €20 billion standby credit line.
Equity markets begun the day in positive territory, bouncing back from heavy losses last week prompted by fresh concerns for US recovery prospects.
The rising trend was halted however after the National Association of Home Builders said its index on US builder confidence in the market for new, single-family homes fell for the second month in a row in July to its lowest level since April 2009.
Wall Street stocks struggled to hold on to early gains, with the housing data renewing fears that US economic momentum could be stalling.
The building report, according to Christopher Purdy, a trader at Spreadex, “provided the hinge for yet another reversal as the vicious cycle of sentiment continues to stifle recovery”.
In London, the FTSE 100 index shed 0.21 per cent to close at 5,148.28 points while in Paris the CAC 40 fell 0.40 per cent to 3,486.33 points. The Frankfurt the DAX lost 0.52 per cent to finish at 6,009.11 points.
Elsewhere, Milan lost 0.22 per cent, Madrid 0.62 per cent and the Swiss Market Index 0.45 per cent.
The Dow Jones industrial average was up 0.18 per cent at 10,116.21 at mid-day, with the Nasdaq composite gaining 0.28 per cent at 2,185.25.
In London, embattled British oil giant BP was the day’s big loser, shedding 4.74 per cent after revealing that the Gulf of Mexico oil spill had now cost it $3.95 billion.
The US government authorised BP to keep the well closed for a further 24 hours to allow tests though experts detected seepage from the surrounding seabed.
Yusuf Heusen of IG Index said the uncertainty prompted by the latest reports of leaking oil led to a bout of profit-taking on BP shares, which had risen sharply last week.
London’s biggest gainer yesterday was energy group International Power, which jumped 10.48 per cent after French energy giant GDF Suez said it was in new talks over a possible merger.
This Friday, the European Union faces a moment of truth the publication of the results of tests that will show whether 91 European banks can survive a new economic crisis.
In Paris, banking shares were under pressure, with Societe Generale down 0.69 per cent and Credit Agricole of 1.07 per cent.
In Frankfurt, engineeing group Siemens lost 1.35 per cent after Finnish-German giant Nokia Siemens Networks said it would buy most of Motorola’s wireless network infrastructure assets for $1.2 billion (€926 million) to bolster its ranking as world number two in the industry.
In earlier Asian deals on Monday, Wall Street jitters set a bearish tone, with most markets edging lower as traders reacted to Friday’s heavy falls.
In subdued trade, and with Tokyo closed for a holiday, Hong Kong dropped 0.79 per cent and Sydney shed 1.46 per cent but Shanghai jumped 2.11 per cent on bargain-hunting.