Downbeat Dell weighs on world markets

AP News
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Posted: Nov 20, 2009 11:45 AM

World stock markets fell Friday amid mounting concerns about the pace of the U.S. economic recovery following a disappointing earnings update from computer maker Dell Inc.

After being higher earlier in the day, the FTSE 100 index of leading British shares closed down 16.29 points, or 0.3 percent, at 5,251.41, while Germany's DAX fell 39.03 points, or 0.7 percent, to 5,663.15. The CAC-40 in France was 30.12 points, or 0.8 percent, lower at 3,730.10.

On Wall Street, the Dow Jones industrial average was down 57.81 points, or 0.6 percent, at 10,274.63 around midday New York time while the broader Standard & Poor's 500 index fell 7.58 points, or 0.7 percent, lower at 1,087.32.

On Thursday, the two main U.S. indexes slid around 1 percent amid mounting concerns about the U.S. economic recovery and an analyst's downgrade of the chip industry.

Technology stocks were at the forefront of Friday's decline, too, after Dell reported a 54 percent drop in net income and a 15 percent decline in revenue in its latest quarter. Both declines were bigger than anticipated and Dell shares were down almost 10 percent.

Investors have also become a bit anxious over the failure of the S&P 500 to sustain its break above 1,100 points. Earlier this week, it managed to close above 1,100 for the first time in over a year but its retreat since then is stoking market talk that the rally since March has dried up ahead of the year end.

Neil Mackinnon, global macro strategist at VTB Capital, warned that there are a number of factors pointing to an imminent correction in stock markets _ as well as the fall back of the S&P 500, he noted that the Nikkei is down 10 percent from it's highs and central banks in Asia are taking measures to discourage "hot money" inflows to stem the appreciation of their currencies against the dollar.

"Look for a correction soon with equity markets testing the October lows," said Mackinnon.

Stock markets have rallied strongly since March's lows as investors reined in their economic doomsday expectations to factor in a swifter than anticipated global economic rebound, but recent disappointing U.S. housing figures and mixed earnings from some of the country's leading retailers have dented the optimism.

Many investors think stock valuations are now pricing in too rapid an economic recovery though there have been similar bouts of doubt since March, which have soon been vanquished.

"The revival in the enthusiasm for risk assets has been characterized by occasional setbacks, but with each reassessment happening at ever-elevated levels, the threat of a more sustained reversal grows," said Daragh Maher, an analyst at Calyon Credit Agricole.

"If it is to be avoided, the market will need continued evidence that the global recovery is progressing well, that corporate profitability can extend beyond cost-cutting to being revenue-driven, and that the upward momentum in risk assets will not falter in the face of technical resistance," he added.

In a speech Friday, the European Central Bank's president Jean-Claude Trichet cautioned investors that it's "too early to declare the crisis over," and warned financial markets that the extraordinary monetary liquidity measures enacted over the last year or so cannot last for too long.

"They can create dependence _ or even addiction _ for the recipients," he said. "Such medicine cannot be a permanent solution."

The European Central Bank is expected to start withdrawing some of the measures at its next rate-setting meeting in early December _ analysts expect the bank to stop 12-month credits at super-low interest rates.

Earlier, Japan's Nikkei 225 stock average lost 51.79, or 0.5 percent, to 9,497.68 even though the Bank of Japan revised up its forecasts for the world's second largest economy. Sony Corp. slid 2.4 percent as investors remained unconvinced by CEO Howard Stringer's plans to turnaround the loss-making electronics giant. Sony is headed for a back-to-back billion dollar loss in the fiscal year ending March, 2010.

Hong Kong's Hang Seng dropped 187.32, or 0.8 percent, to 22,455.84 and Australia's benchmark fell 1.3 percent. South Korea's Kospi was flat while China's Shanghai index shed 0.4 percent.

Elsewhere, benchmark crude for December delivery fell $1.06 to $76.40 a barrel while gold prices fell $3 to $1,138.10 an ounce. Earlier this week, gold prices rose above $1,150 an ounce for the first time ever.

The dollar was steady at 88.95 yen while the euro dropped 0.4 percent to $1.4861.

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AP Business Writer Stephen Wright in Bangkok contributed to this report.