European stocks hit by Fed comments

European stock exchanges wilted yesterday, undermined by a downbeat Fed analysis of the US economy, a weakening dollar and negative news from two major European banks.

European investors continued to fret over a Federal Reserve assessment on Tuesday that the US recovery had slowed, as well as the Fed’s assertion it was prepared to continue bond purchases to prevent the onset of a fresh economic decline.

The comments weighed on the dollar, helped send gold to record highs above $1,296 an ounce, and boosted the euro.

“When the US central bank says that no matter what happens it will always be there, it weakens the dollar,” said analyst Frederic Rozier of Meeschaert Gestion Privee.

The sliding dollar and strengthening euro depressed sentiment in Europe, as the trend threatens to increase the price of European exports, making them less competitive.

The London FTSE 100 index shed 0.44 per cent to close at 5,551.91 points. There were sharper falls in Paris, where the CAC 40 gave up 1.30 per cent to finish at 3,735.05, and in Frankfurt, where the DAX lost 1.08 per cent to end the day at 6,208.35.

Elsewhere in Europe there were declines of 1.93 per cent in Madrid and 1.18 per cent on the Swiss Market Index.

In Asian trade yesterday, markets saw mixed fortunes as the yen soared against the dollar despite Tokyo’s recent efforts to weaken the Japanese unit.

As a result, Tokyo’s benchmark Nikkei index slipped 0.37 per cent.US investors too were affected by the Fed action. The Dow Jones Industrial Average was down 0.33 per cent by mid-day at 10,725.24 while the tech-heavy Nasdaq had slipped 0.89 per cent to 2,328.55.

Jitters about the upcoming earnings season also dampened confidence.

“The risk premium in equities is high because the uncertainty about global economic conditions is high,” said Patrick O’Hare of Briefing.com.

European investors in addition had to contend with a profit warning from Germany’s Deutsche Bank and the aftermath of the replacement of Alessandro Profumo as chief executive officer at Italy’s UniCredit bank.

In Frankfurt, Deutsche Bank, Germany’s biggest lender, plunged 8.35 per cent after it issued a profit warning and launched a rights issue aimed at funding its takeover of Postbank.