European and U.S. stock markets traded without much direction Tuesday as investors weighed economic data that showed U.S. wholesale inflation rose more than expected last month. Volumes stayed low ahead of the holiday season.
The FTSE 100 index of leading British shares closed down 0.6 percent at 5,285.77, while Germany's DAX rose 0.2 percent to 5,811.34 and France's CAC 40 was 0.1 percent higher at 3,834.09.
In midday trading in New York, the Dow Jones industrial average slipped 0.2 percent to 10,485.48 and the Standard & Poor's 500 index dropped 0.1 percent to 1,112.51.
A bigger-than-expected increase in U.S. wholesale inflation is certain to raise the attention of Federal Reserve policymakers beginning a two-day meeting on interest rates.
The Fed has been able to keep interest rates at record-low levels to bolster the shaky recovery, but if inflation pressures begin to mount, the central bank could be forced to start raising rates sooner than expected. Higher rates are central banks' chief weapon against inflation.
Wholesale prices jumped 1.8 percent in November, according to the Labor Department _ more than double the 0.8 percent gain analysts expected. Core inflation, which excludes energy and food, rose 0.5 percent, the biggest increase in more than a year.
Meanwhile, a separate report showed industrial production rose a better-than-expected 0.8 percent in November, suggesting that manufacturers are helping the economy slowly recover. The gain showed that consumers are spending more, causing manufacturers to produce more goods.
Stocks in Europe staged something of a recovery in the afternoon as Wall Street trimmed earlier losses, although markets found it hard to cling to positive territory. European markets had earlier traded lower as the euro slid to a two and a half month low against the dollar on worries about the Greek government's debts and the financial health of Austria's banks. Continued low trading volumes also added to volatility.
"It's the same theme we've been seeing for a while _ volumes are low which always tends to give us more volatility. Volumes are way off what we had yesterday," said James Hughes, market analyst at CMC Markets.
The euro fell Tuesday to $1.4526, its lowest level since late September.
Analysts said worries about Greece and Austria, two of the 16 countries that use the euro, continued to dog the currency as well as stocks.
Investors are also beginning to fret about the exposure of Austria's banks to Eastern Europe, where the recession has been particularly acute.
On Monday, Austria nationalized Hypo Alpe Adria, a unit of German public-sector bank BayernLB _ the move was designed to prevent the bank from sliding into a bankruptcy fueled in part by bad loans, much of them in Eastern Europe.
There was also talk Tuesday that other banks may face a similar fate having notched big losses too.
Austria's Die Presse newspaper said the country's three banking supervisory bodies have put Oesterreichische Volksbanken AG, the country's fourth largest bank, under surveillance. A central bank spokesman denied the report, saying there was no "watch list."
"It is clear that Europe's peripheral banking sector with its massive exposure to real estate (Iberia, Ireland) or Central Eastern Europe (Austria) will continue to scare markets unless balance sheet clarity is re-established," said Hans Redeker, global head of foreign exchange research at BNP Paribas.
Worries over Austria come on top of renewed concerns about Greece's financial stability.
New Prime Minister George Papandreou sought to calm frayed nerves Monday about the shaky state of the country's public finances by announcing a package of spending cuts as part of a drive to bring borrowing down from over 12 percent of economic output to under 3 percent by 2013.
"Whether or not a debt crisis can be avoided in Greece remains to be seen, but the whole affair has once more raised questions about the political and structural mechanisms of the eurozone," said Neil Mellor, an analyst at Bank of New York Mellon.
Investors are fully aware that gains could well peter out as this is the last full trading week of 2009 and they may use the opportunity to bolster their portfolios by locking in gains made over the last nine months.
Earlier in Asia, Japan's Nikkei 225 stock average fell 0.2 percent to 10,083.48 and Hong Kong's Hang Seng retreated 1.2 percent to 21,813.92.
China's main index fell 0.9 percent amid news the government was vowing to clamp down on surging property prices. South Korea's Kospi was marginally in the green _ rising 0.1 percent to 1,665.85 _ after flitting in and out of negative territory. However, Australia's benchmark added 0.4 percent.
Oil prices rose, with benchmark crude for January delivery up $1.08 to $70.59 a barrel.
AP Business Writers Pan Pylas in London and Jeremiah Marquez in Hong Kong contributed to this report.