European stocks down

European stock markets closed lower yesterday after a strong early rally, which also saw gold at record highs, was undercut by a slump in US consumer confidence and concerns over weaker eurozone states.

Dealers said a solid advance unravelled in the afternoon when figures showed US consumer confidence dropped to a one-year low in August, sparking fresh fears the US economy faces the risk of slipping back into recession.

Rumours – later officially denied – that debt-stricken Ireland might seek help from the International Monetary Fund hit confidence in the eurozone outlook, pushing Irish bond yields up sharply as investors demanded larger returns to hold them.

Dealers said the strong start for stocks and gold were driven by expectations the US authorities would keep the US economy on track at all costs, by pumping even more money into the system if necessary.

Printing more money increases the inflation risk, making gold an even more attractive safe-haven investment, they said, while companies would benefit from the looser monetary conditions.

Dealers also noted that Japan’s intervention in the forex markets this week – the first such action in six years – to weaken the soaring yen has raised a host of uncertainties at a time when tensions are also rising between Washington and Beijing over the value of the yuan.

In London, the FTSE 100 index of leading shares closed down 0.57 per cent to 5,508.45 points. In Paris, the CAC 40 index fell 0.38 per cent to 3,722.02 points and in Frankfurt, the DAX dropped 0.64 per cent to 6,209.76 points.

Elsewhere in Europe, Amsterdam was down a marginal 0.04 per cent, Brussels fell 0.62 per cent, Madrid shed 1.20 per cent, Milan lost 0.80 per cent and Swiss stocks dropped 0.55 per cent.

In Asian trade earlier yesterday, Tokyo rose 1.23 per cent as investors welcomed the prospect of a weaker yen which will boost exporters.

Hong Kong was up 1.29 per cent but Shanghai slipped 0.15 per cent. Sydney added 0.73 per cent.Gold, extending gains, hit a record $1,282.97 on the London Bullion Market before falling back to $1,274 an ounce at the late fixing.

Bonds, another safe-haven investment, rose sharply as in-vestors retreated from stocks.

The euro was at $1.3045 around 1600 GMT, down from $1.3078 in New York late Thursday.

The dollar fell to ¥85.77 from ¥85.90, as the market discounted warnings of further intervention from Tokyo to weaken the Japanese currency.

Analyst Neil MacKinnon at VTB Capital said gold and stocks rose earlier “because the markets think the Fed will print more money before the end of this year just to ensure that the US economy remains on an even keel”.

“The risk for investors is that the US economy does actually fall into a ‘double-dip’ (recession) and not the ‘soft landing scenario’ which the markets are currently discounting,” Mr MacKinnon added.

Dealers in Paris said rumours that Ireland might need IMF help forced the market into reverse, reflecting the note of underlying caution in the markets despite recent gains.

The rumours, strongly denied by the Irish Finance Ministry, may have done more damage as they came ahead of an Irish bond sale next week, they added.

The US consumer confidence data was disappointing, they said, driving fears the most important sector of the US economy is struggling for growth.