Fears about the global recovery stalk markets

AP News
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Posted: May 17, 2011 11:12 AM
Fears about the global recovery stalk markets

Uncertainty over the global economic recovery and Europe's debt crisis weighed on stock markets Tuesday, but the euro remained buoyant despite fears about the long-term impact of the arrest of International Monetary Fund chief Dominique Strauss-Kahn.

Investor worries that the U.S. economic recovery is slowing has soured market sentiment over the past few weeks, particularly in stock markets and in commodities, following bumper gains in the first few months of the year.

U.S. housing and industrial production figures did little to improve such sentiment, which remained fairly downbeat as investors also awaited further developments on Europe's debt crisis and the arrest of Strauss-Kahn.

In meetings in Brussels, eurozone finance ministers agreed on the euro78 billion ($110 billion) bailout of Portugal and told Greece to speed up reforms and its privatization program. Some ministers, but not all, also suggested that Greece's debt repayment schedule could be extended.

So far, the eurozone ministers in Brussels have managed to get on with their business despite Strauss-Kahn's arrest over the weekend for alleged sexual crimes in New York.

However, in the longer-term there are worries that the arrest may prompt a change at the top of the IMF to someone less amenable to Europe's needs. That could be the case if the next leader comes from outside Europe for the first time since the IMF was created in the aftermath of World War II.

The Strauss-Kahn uncertainties have so far not hurt the euro, partly because many had already expected the Frenchman to quit his post later this year to make a run for his country's presidency in 2012.

By mid afternoon London time, the euro was 0.2 percent higher at $1.4167.

In Europe, the FTSE 100 index of leading British shares was down 0.6 percent at 5,891 while France's CAC-40 fell 0.8 percent at 3,959. Germany's DAX underperformed its peers, trading a hefty 1.4 percent lower at 7,283.

Sentiment in Germany was further undermined by a weaker-than-expected survey into investor sentiment from the ZEW institute.

ZEW said its main economic expectations index fell for the third month running to 3.1 in May from the previous month's 7.6 as investors worried that the pace of recovery over the coming six months.

"May's fall adds to evidence that the German economic recovery may be starting to slow," said Ben May, European economist at Capital Economics.

Last week, figures showed Germany's economy, Europe's largest, enjoyed a stellar start to the year, with growth at 1.5 percent during the first quarter.

In the U.S., the news that industrial production was flat in April against expectations for a 0.4 percent rise and that housing starts fell 10.6 percent prompted a retreat in early trading. The Dow Jones industrial average was down 0.5 percent at 12,480 while the broader Standard & Poor's 500 index fell 0.3 percent to 1,326.

Earlier in Asia, Japan's Nikkei 225 closed slightly up at 9,567.02 while Hong Kong's Hang Seng index fell 0.3 percent to 22,901.08. Australia's S&P/ASX 200 gained 0.7 percent to 4,683.90.

In mainland China, the Shanghai Composite Index rose 0.1 percent to 2,852.77 but the smaller Shenzhen Composite Index lost 0.1 percent to 1,197.04.

In the oil markets, prices fell again. Benchmark crude for June delivery was down 63 cents to $96.74 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $2.28 to settle at $97.37 on Monday.

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Pamela Sampson in Bangkok contributed to this report.