European stock markets traded in a narrow range yesterday, with investors cautious ahead of an interest rate rise expected by the European Central Bank this week.
London’s FTSE 100 index of leading shares fell 0.17 per cent to finish at 6,007.06 points. In Paris the CAC 40 was stable, falling a single point, or 0.03 per cent, to 4,041.74 points while in Frankfurt the DAX was unchanged at 7,175.31 points.
There was more bad news for Portugal with a new ratings downgrade from Moody’s, stoking fresh eurozone jitters.
London was also hit by a downbeat survey from the British Chambers of Commerce, whose quarterly poll of 6,000 businesses concluded that the nation’s economy faces a choppy recovery this year.
Moody’s Investors Service yesterday downgraded Portugal’s ratings by a notch from A3 to Baa1 and warned that it expected the country to have to seek outside help to resolve its debt problems.
The downgrade follows others by Moody’s itself and the top ratings agencies after parliament rejected the government’s latest austerity package last month, forcing its resignation.
The markets increasingly believe that Lisbon will be forced to seek outside help, like fellow eurozone strugglers Greece and Ireland last year, and are demanding ever higher rates of return to provide fresh funds to cover its debt.
It will be no comfort to Portugal, and other struggling eurozone economies such as Greece and Ireland if the European Central Bank, as expected, tomorrow announces its first interest rate hike in almost two years.On the same day the Bank of England is forecast to maintain its key interest rate at a record-low 0.50 per cent.
“Only a severe escalation of the situation in Japan or a crisis in the financial markets is likely to prevent the ECB from raising rates” tomorrow, Commerzbank economist Michael Schubert said.
It would be the ECB’s first interest rate hike since July 2008 – from an all-time low of 1.0 per cent – to combat high inflation across the eurozone.
Elsewhere on European bourses it was a mixed picture yesterday, though with no major winners or losers. The Swiss bourse was up 0.24 per cent and Milan up 0.23 per cent.
The biggest loser was the Lisbon market, down 0.98 per cent on the day. Madrid was down 0.72 per cent and Brussels shed 0.34 per cent.
Across the Atlantic, US stocks rose modestly in early trading yesterday, as sentiment was dampened by data showing slower growth in the crucial services sector.
At 1500 GMT the Dow Jones Industrial Average added 6.09 points (0.05 per cent) at 12,406.12, while the tech-rich Nasdaq Composite rose 10.28 points (0.37 per cent) to 2,799.47. The broad-market S&P 500-stock index gained 1.92 points (0.14 per cent) at 1,334.79. “Rates hikes out of China, debt concerns in Europe, continued uneasiness toward the Japanese tragedy, and near-$108 per barrel WTI crude oil prices are all weighing on US stocks,” Charles Schwab analysts said in a client note.
China’s central bank said it would raise key interest rates a quarter percentage point – the fourth hike since late last year – as authorities try to curb rampant inflation by slowing growth in the world’s second-largest economy.Asian shares traded mixed in quiet trade yesterday as Tokyo was hurt by renewed fears over the crisis at the stricken Fukushima nuclear plant.
Tokyo’s Nikkei slipped 1.06 per cent to 9,615.55 points, while Sydney gained 0.27 per cent; Seoul added 0.69 per cent and Singapore rose 0.50 per cent.
Australia said yesterday that a planned Aus$8.4 billion ($8.9 billion) merger between the Australian and Singaporean bourses was against the national interest but was still considering the deal.
The ASX and Singapore Exchange Limited announced plans last October to create one of the world’s largest and most diversified financial trading hubs.