Ukraine referendum tensions weigh on markets

AP News
Posted: May 09, 2014 12:09 PM
Ukraine referendum tensions weigh on markets

LONDON (AP) — Renewed jitters about Ukraine as pro-Russian militants pressed ahead with plans for an independence referendum weighed on markets Friday.

Ukraine continued to loom large for investors. Insurgents in the country's east are preparing for a weekend referendum on independence, a vote similar to the plebiscite that paved the way for Moscow's annexation of Crimea in March. Preparations have continued despite a call by Russian President Vladimir Putin to put off the vote amid negotiations with the West over Ukraine's future.

In Europe, the FTSE 100 index of leading British shares closed down 0.4 percent at 6,814.57 while Germany's DAX fell 0.3 percent to 9,581.45. The CAC-40 in France ended 0.7 percent lower at 4,477.28.

The main point of interest was the euro, after its sharp turnaround Thursday in the wake of a hint from European Central Bank President Mario Draghi that the bank could ease monetary policy further next month to boost inflationary pressures across the 18-country eurozone. Standing at an annual rate of 0.7 percent, inflation in the eurozone is below the ECB's target of just below 2 percent.

The ECB could, for example, cut interest rates which would make the euro less attractive. That's largely why the euro is down a further 0.6 percent Friday at $1.3756. Before Draghi made his remarks, the euro nearly hit $1.40 for the first time in two-and-a-half years.

"Draghi's interjection has no doubt provided euro bulls with the perfect opportunity to consolidate gains and reflect upon a decent run, though whether it has deprived the euro of a major pillar of support to dissuade them from regrouping, is another matter," said Neil Mellor, senior currency strategist at Bank of New York Mellon.

In the U.S., the Dow Jones industrial average was down 0.1 percent at 16,536 while the broader S&P 500 index, which nearly struck another all-time high on Thursday, fell 0.3 percent to 16,536.

"As earnings season winds down, we are still lacking the vital spark to send this market higher," said Brenda Kelly, chief market strategist at IG.

Earlier in Asia, the mood was mixed after lower than anticipated Chinese inflation figures. Though the drop in the annual rate to 1.8 percent may give Beijing more leeway to stimulate the slowing Chinese economy if needed, it also underlined the extent to which domestic demand has weakened.

Hong Kong's Hang Seng closed up 0.1 percent at 21,862.99 while Japan's Nikkei 225 stock average gained 0.3 percent to 14,199.59. South Korea's Kospi edged up 0.3 percent.