European stock markets and the euro were lower yesterday, taking a sharp knock on news of another powerful earthquake in Japan just as the country tries to recovers from its record shock last month.
Dealers said investors had a lot of news to deal with – a eurozone rate hike, Portugal seeking a debt bailout, more Middle East unrest – but had coped well for most of the day, finding support in strong US jobs data.
They said the US figures bolstered the case for a strong US economic recovery, helping stocks, but reports of a 7.1 strong quake in northeastern Japan, the same area devastated last month, set nerves on edge again.
Workers battling to control the stricken Fukushima nuclear plant were ordered to evacuate and a tsunami alert was issued while buildings shook in Tokyo.
In London, the FTSE 100 index of leading shares closed down 0.56 per cent to 6,007.37 points. In Paris, the CAC 40 lost 0.49 per cent to 4,028.30 points and in Frankfurt the DAX shed 0.50 per cent to 7,178.78 points.
Dealers said that most of the day’s news was largely anticipated, with the sense even that Portugal’s asking for aid was positive, removing an irritating uncertainty after months of intense speculation.
Similarly, the European Central Bank’s first hike in interest rates in nearly three years to 1.25 per cent from a record low one per cent was widely anticipated.
Comments by ECB head Jean-Claude Trichet were quite hardline on the inflation outlook but appeared to rule out another early rate hike.
Michael Hewson at CMC Markets said Trichet “poured cold water” on the idea in the short-term while other analysts suggested the ECB could move again in June or July.
As expected too, the Bank of England left its key interest rates on hold at a record 0.50 per cent, hoping to bolster a weak economy even as inflation rises sharply.
The euro was lower at $1.4281 in late London trade, down from $1.4331 late Wednesday in New York as investors took profits on the sharp gains made ahead of the ECB announcement.
The dollar meanwhile slipped to 84.74 yen from 85.44 yen.
Portugal’s decision to seek a debt rescue from the EU and International Monetary Fund, after Greece and Ireland last year, was no surprise and had little market impact.
“This move was inevitable following a failure of the Portuguese government to get austerity measures through parliament in March which led to a lame duck administration,” Dolmen Stockbrokers wrote in a note.
The Lisbon market closed 1.18 per cent higher, helped by an end to the uncertainty over whether or not Portugal would need assistance.
Elsewhere in Europe, markets were mostly flat to lower.
In New York, stocks fell sharply on news of the earthquake in Japan but then pared losses as traders waited to see the full extent of the damage.
The blue-chip Dow Jones Industrial Average was 0.18 per cent at around 1650 GMT while the tech-heavy Nasdaq Composite was up 0.20 per cent coming off earlier lows.
Peter Cardillo of Avalon Partners said the markets were lower after the Japan earthquake sparked fresh fears over the impact on the world economy.
The Bank of Japan earlier yesterday warned of the pressures facing a nation reeling from its biggest recorded earthquake, a tsunami and a nuclear crisis.
“Japan’s economy is under strong downward pressure, mainly on the production side, due to the effects of the earthquake disaster,” it said.
Asian markets were little changed over, with Tokyo edging up just 0.07 per cent.