Europe Markets

Euro Markets Follow Wall Street Lower

European stock markets closed largely flat Thursday after Federal Reserve Chairman Ben Bernanke said the Fed was prepared to act to help the struggling U.S. economy.

Major European indexes got a boost earlier from a mixed report on U.S. jobless claims and news that the U.S. trade deficit narrowed more than expected Thursday despite soaring oil prices.

First-time claims for unemployment benefits fell by 9,000 to 348,000 last week, the Labor Department reported, while economists had expected the indicator to drop by 6,000. However, the four-week moving average, which smooths out weekly volatility, rose to its highest level since October 2005, right after Hurricane Katrina.

European shares also got an early boost as the vast majority of the day's major earnings reports met with investor approval.

Asian markets posted strong gains earlier, with Japan rising 4 percent, while Wall Street rode a tech rally higher in the previous session.

"The results from Europe have been good, but like 2003, we are in an inflection year, and in an inflection year, one needs to look forward and trailing earnings are meaningless," said Ad van Tiggelen, senior strategist at ING Investment Management in Amsterdam.

"We are in a bear market and this is a bear market rally."

Not Easy for Banks

On the FTSE-100, miner Anglo American was among the top gainers, rising 2.3 percent after a newspaper reported that Rio Tinto may be looking to acquire another company. Drinks company Diageo rose more than 4.6 percent after reporting a 15 percent rise in six-month per-share profit and affirmed its guidance for the full year.

Looking to the Frankfurt DAX, Commerzbank lost 6.6 percent after its CEO said 2008 will be volatile and not easy for banks and stock markets. Shares had been up earlier after the company proposed a 1-euro-a-share dividend after writing down 241 million ($425 million) in the latest quarter due to subprime exposure.

On the Paris CAC-40, Capgemini jumped 8.2 percent after the company posted a strong gain in profit and boosted its dividend by 43 percent. Air France-KLM fell 4.2 percent, despite a strong rise in operating profit.

ABB shares fell 1.5 percent on the Zurich SMI, despite issuing bullish comments on 2008 expectations.

UBS also bucked the winning trend, slipping 8.3 percent after it said it expected 2008 to be a difficult year. The company unveiled $26.6 billion in new exposure to risky U.S. mortgages and would not say if it would return to profit in early 2008 after huge losses in 2007.


European shares have rallied 10 percent since hitting a low for the year on Jan. 22, helped by two U.S. rate cuts that lopped 125 basis points off the Fed funds rate.

At its lowest point this year, the FTSEurofirst 300 was 25 percent off a multi-year peak hit in July 2007. Analysts consider a fall of 20 percent from such a peak as signalling a bear market.

Banks were worst hit by a credit crisis stemming from a meltdown in the U.S. subprime mortgage sector last year, and have been among the top losers again this year.

The DJ Stoxx European banking index has lost 15.5 percent so far in 2008, matching losses in autos and insurers.

Van Tiggelen said that he expected financials to lead the markets higher as the months passed.

"The first thing to be buying is the financials," he said.

"On cyclicals, the bad news is yet to start," he added, saying that he expected European company earnings to decline 5-10 percent this year.

-- Reuters contributed to this report