Global stocks recover after slide

AP News
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Posted: May 24, 2011 10:23 AM
Global stocks recover after slide

Stocks around the world recovered Tuesday, a day after mounting fears over Europe's debt crisis sent shares tumbling, while oil prices pushed back toward $100 a barrel after Goldman Sachs issued an upbeat assessment of commodity prices despite recent concerns over the pace of the global economic recovery.

However, concerns over Europe's debt crisis remain, especially after Greece's main opposition party said it was not backing the government's new austerity measures.

Greek Prime Minister George Papandreou was meeting with opposition parties in an attempt to build a consensus over the current government's economic program, which includes further spending cuts and a raft of privatizations, but conservative leader Antonis Samaras said he "remained opposed" to the government's handling of the crisis, even though he agreed with certain measures.

The hope in the markets, at least in the early part of the session, was that the latest batch of Greek measures would be enough to appease critics in the EU and the International Monetary Fund, and allow the debt-stricken country to get the next batch of bailout loans.

So far, the news of Samaras' opposition has not undermined the tone of stability in stock markets, a day after heightened concerns over Europe's debt crisis prompted a big retreat in stock markets around the world.

The concerns did not just center on Greece _ warnings over Italy's and Belgium's credit rating combined with unease over the political will in Spain to carry on with austerity measures to send stocks sliding all around the world.

There was some relief that neither Italy nor Belgium have not seen borrowing costs go through the roof Tuesday, helping to shore up sentiment in the markets.

"The good news, as far as I can see, neither Italian or Belgian spreads are wider today, and the market still draws a huge line between Greece, Portugal and Ireland, and the rest... which allows us to refocus a little and risk to rally a bit," said Kit Juckes, an analyst at Societe Generale.

In Europe, the FTSE 100 index of leading British shares was up 0.6 percent at 5,870 while Germany's DAX rose 0.8 percent to 7,179. The CAC-40 in France was 0.4 percent higher at 3,921. Meanwhile, the euro was also faring better, trading 0.5 percent higher on the day at $1.4099 _ on Monday, the currency dropped below $1.40 for the first time in two months.

U.S. stocks tracked their European counterparts higher too _ the Dow Jones industrial average was up 0.2 percent at 12,400 soon after the open while the broader Standard & Poor's 500 index rose 0.3 percent to 1,321.

The gains are still well short of the losses posted Monday, indicating that investors remain on alert for any further flaring up in Europe's debt crisis, which has already seen Ireland and Portugal join Greece in the bailout club.

The main concern centers on whether Greece will restructure its debt, a scenario which ratings agency Moody's said constitute a default, which could badly hit the other debt-laden euro countries.

"Moody's believes that a default is likely to have adverse credit rating implications for Greece, possibly some other stressed European sovereigns, and the Greek banks, regardless of the efforts made to achieve an 'orderly' outcome," the agency said. "The full impact on Europe's capital markets would be hard to predict and harder still to control."

News that Moody's also put 14 British financial institutions, including Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC on review for a possible downgrade has also kept the stock market advance in check.

With little apart from new home sales on the U.S. economic calendar, it could be a fairly subdued session later on Wall Street, especially as traders may seek to take stock of Monday's widespread selling.

Despite Tuesday's modest improvement in sentiment, the trend in the stock markets in recent weeks has been downward as soft U.S. economic data combined with the deteriorating European debt crisis and few signs that inflation pressures are easing.

Until those three over-arching worries are soothed, trading could well remain volatile heading into the summer months, when activity usually dries up.

Earlier, a choppy day of trading in Asia ended with key benchmarks higher.

Japan's Nikkei 225 rose 0.2 percent to close at 9,477.17 while Hong Kong's Hang Seng ended marginally higher to 22,730.78.

South Korea's Kospi rose 0.3 percent to 2,061.76 but Australia's S&P/ASX 200 lost 0.3 percent to 4,628.80, with some mining shares hit by worries that a slowdown in Chinese manufacturing would lead to falling demand for commodities.

Mainland Chinese shares were mixed as weak economic indicators and pessimistic forecasts for the near-term outlook weighed on sentiment. The benchmark Shanghai Composite Index lost 0.3 percent to 2,767.06, the lowest close in four months, while the Shenzhen Composite Index of China gained 0.1 percent to 1,150.91.

In the oil markets, the improved stock market tone helped support prices. Benchmark crude for July delivery was up $1.81 to $99.51 per barrel in electronic trading on the New York Mercantile Exchange, having lost $2.40 a barrel on Monday.

Despite the recent volatility in oil prices, Goldman Sachs said the civil conflict in Libya, which has shut down almost all the country's 1.6 million barrels a day of oil production, will eventually push prices higher.

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Pamela Sampson in Bangkok contributed to this report.