European shares closed mostly lower yesterday in cautious trade marked by political feuding in Slovakia over a boost to the eurozone bailout fund and a warning by ECB chief Jean Claude Trichet that the world faced systemic dangers.
London’s FTSE-100 index closed off 0.06 per cent to 5,395.7 points and Paris’ CAC 40 index was down 0.25 per cent to 3,153.52 points.
Frankfurt’s DAX bucked the trend to end the day with a gain of 0.30 per cent to 5,865.01 points.
Elsewhere in Europe, Milan slipped 0.38 per cent, Madrid 0.53 per cent, Lisbon 1.25 per cent, Brussels 0.69 per cent and Amsterdam by 0.16 per cent.
In foreign exchange deals, the European single currency was steady at $1.3643 from $1.3645 in New York late on Monday. The dollar was flat against the yen at 76.68 yen from 76.67 yen on Monday.
After major gains in the last four sessions, “a day to consolidate is perfectly legitimate,” Yves Marcais of Global Equities in Paris said.
“There are technical explanations for today’s retreat and caution by investors who are waiting for the vote in Slovakia and the first (third quarter) earnings results from US companies,” he added.
In the US, stocks bounced back from early lows with the Dow Jones Industrial Average flat at 11,431.74 points in midday trade. The broader S&P 500 rose 0.22 per cent to 1,197.48 points, while the tech-heavy Nasdaq Composite gained 0.58 per cent to 2,580.89 points.
At open, US stocks had retreated following Monday’s heavy rallies on hopes for European political action on resolving the eurozone debt crisis.
Slovakia’s centre-right coalition is deadlocked with Prime Minister Iveta Radicova putting her job on the line through a confidence vote in addition to the vote on the rescue fund.
Ms Radicova’s junior coalition partner, the Freedom and Solidarity (SaS) party, continues to reject the measure, jeopardising passage of crucial changes to the EFSF needed for it to be used to shore up weakened banks and go ahead with a second Greek bailout.
The changes to revamp the EFSF, agreed in July, have been approved by all other eurozone members states, leaving Slovakia holding the key to passage of measures seen as vital to taming the euro debt crisis.
“The ... (equities) rally has stalled and European bourses are reversing after some hesitation on Slovakia’s part about approving an extension of the EFSF,” said trader Chris Purdy at Spreadex.
“This hesitation casts further doubt over how long a set of states with vastly differing opinions can operate in concert.”
Just weeks before he leaves office, European Central Bank chief Jean-Claude Trichet said the eurozone debt crisis had reached systemic dimensions and called for decisive action from governments. Mr Trichet warned that the crisis in sovereign debt has reached global proportions and Europe was at its epicentre.
Shortly after, EU Commission President José Manuel Barroso said he would today reveal proposals to recapitalise EU banks and improve eurozone governance.
France and Germany pledging swift and incisive action to combat the debt crisis within weeks had sent world shares soaring on Monday.
However, the vow – after a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel on Sunday – lacked substance, with the two leaders pledging details would be released soon.
“The weekend talks between Merkel and Sarkozy have really given us little more than we had already,” said analyst James Hughes at trading group Alpari.
“We continue to hear from officials that the meetings are going well and that resolutions are being agreed to, however, we are yet to hear exactly what any of the details are behind it.”
Further ahead, the market focus will switch to a meeting of Group of 20 (G20) finance ministers and central bank governors in Paris on Friday and Saturday. Asian markets soared for a fourth straight day yesterday as dealers followed a rally on Wall Street sparked by the French and German promise to back up beleaguered eurozone banks.