A European stock market rally fizzled yesterday, with most exchanges closing lower in response to news that US manufacturing activity grew more slowly than expected last month.
Investors were also uneasy about a steady slide in the dollar against the euro, which threatened to erode European export earnings and slow economic recovery.
Markets showed solid gains earlier in the day, with sentiment underpinned by a report that an index measuring manufacturing in China had hit a five-month high in September.
That suggested that critical Chinese demand for foreign goods and services would remain healthy.
But the trend turned quickly negative on most exchanges, apart from London, when the Institute of Supply Management said its purchasing managers index (PMI) measuring activity in the US manufacturing sector rose to 54.4 per cent in September, the 14th consecutive month of expansion.
The growth was nonetheless weaker than the 55.0 per cent rise expected by most analysts and was down from a 56.3 per cent reading in August.
“While the headline number shows relative strength this month as the PMI reading of 54.4 per cent is still quite positive, the overall picture is less encouraging,” Norbert Ore, head of the ISM business survey committee, said in a statement.
The London FTSE 100 index managed a gain of 0.80 per cent to 5,592.90 points but the CAC 40 in Paris fell 0.62 per cent to 3,692. The Frankfurt DAX dropped 0.28 per cent to end the week at 6,211.34 points. Elsewhere, Milan was down 0.56 per cent, Madrid, 0.61 per cent, Amsterdam 0.18 per cent and the Swiss Market Index 0.19 per cent.
Analysts said the advance in London was driven by the oil sector, notably as prices of crude oil went above $80 a barrel. The market also welcomed the arrival of Robert Dudley to head BP, the British petroleum giant plagued by a costly oil spill in the Gulf of Mexico.
US stocks were mixed at mid-day. The Dow Jones Industrial Average was up by 0.21 per cent at 10,810.68 while the tech-heavy Nasdaq had slipped 0.09 per cent to 2,366.42.
US traders initially took heart from data released by the Commerce Department showing that consumer spending, a key growth indicator, rose 0.4 per cent from July, the second straight monthly gain after stagnating in June.
The rise was better than the 0.3 per cent forecast by analysts.
The consumer spending data “support the idea that a double-dip recession remains a low probability,” said Patrick O’Hare of Briefing.com.
Added Joel Naroff of Naroff Economic Advisers: “Households are making money and spending money but the whole process is pretty tame ... The recovery continues, is in little danger of falling apart but is also showing no signs of accelerating.”
Asian stock markets mainly rose yesterday as strong Chinese data eased fears of a slowdown in the world’s second biggest economy.
Tokyo rose 0.37 per cent and Seoul added 0.21 per cent, while Sydney edged down slightly.