European stock markets steadied yesterday and the euro dropped against the dollar after a week dominated by rising concerns about the economic outlook for both the US and the eurozone.

An upbeat consumer confidence report from the US helped stocks reverse some lost ground but concerns about the looming ‘fiscal cliff’ at year-end continued to weigh on sentiment.

London’s FTSE 100 index of top companies dipped 0.11 per cent to 5,769.68 points at closing, and Frankfurt’s DAX 30 gave up 0.58 per cent to 7,163.5 points, while in Paris the CAC 40 rose 0.47 per cent to 3,423.57 points.

Madrid’s IBEX 35 index inched up 0.16 per cent to 7,636.10 points.

“European markets are soft over fears for the Greek austerity measures being pushed through and the imminent resolution of the US debt ceiling,” said Alastair McCaig, market analyst at IG trading group.

In foreign exchange activity, the euro fell to $1.2715 from $1.2748 in New York late Thursday.

Gold prices rose to $1,738.25 an ounce from $1,717 on Thursday as traders sought safety.

After opening mostly lower, indices on Wall Street crossed into positive territory after the University of Michigan’s consumer sentiment data for November.

Consumer confidence rose more than expected and hit the highest level since July 2007.

“That’s good news for consumer spending and economic growth,” said Jennifer Lee at BMO Capital Markets.

In midday trade, the Dow Jones Industrial Average was up 0.32 per cent, the S&P 500-stock index rose 0.63 per cent, while the tech-rich Nasdaq Composite added 0.75 per cent.

US President Barack Obama’s re-election this week has stoked concerns of political gridlock in Washington with a ‘fiscal cliff’ approaching that could tip the country back into recession.

While Obama’s victory over Mitt Romney removed uncertainty, traders have now turned their focus to the deep spending cuts and huge tax hikes that will come into force on January 1 if Republicans and Democrats do not reach a deal.

The package is a major threat to the economy after a protracted but possibly reckless compromise was reached last year – with the expectation a less painful plan could be agreed – to raise the country’s borrowing cap.

If the automatic measures kick in, the US’s slow recovery from the financial crisis could be reversed and the nation tip back into recession, dealing a blow to the global economy.

“Markets remain nervous and understandably so with the US fiscal cliff looming on the far side of the Atlantic and this side, despite what the ECB President ‘super’ Mario (Draghi) says, the eurozone crisis continues to rumble on,” said Capital Spreads analyst Angus Campbell.

Greek lawmakers on Wednesday adopted an €18.5 billion package of cuts and labour reforms as tens of thousands of angry protesters massed outside Parliament, some hurling petrol bombs at police firing tear gas. (AFP)

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