By Barbara Kollmeyer
MADRID (MarketWatch) -- European stock markets fell on Tuesday,
with nearly all sectors in the red by the afternoon, and led lower
by resource stocks, which fell after a surprise rate hike by China.
Tech stocks and U.S. earnings news also weighed on bourses in the
region.
The Europe Stoxx 600 index slipped 0.2% to 266.03, after a rise
of 0.3% on Monday. Losses were softened slightly after news of a
0.3% gain in U.S. housing starts in September, stronger than
economists expected and the highest level since April.
U.S. stock futures pointed to a much weaker Wall Street open as
the market absorbed a wave of key earnings and the China hike. The
quarter-point hike in China's deposit and lending rates was not
expected until early next year.
"If you're tightening the belt, it's the same as saying
inflation is too high and activity is too high," said Christian
Tegllund Blaabjerg, chief equity strategist at Saxo Bank. "You want
to dampen things before they get overheated. Resource stocks are
the first to get hit."
"It is good news for the U.S., though, because it's a de-facto
appreciation of the Chinese currency, even though it's a small
one," he said.
Resources fell on the news that any attempt by China to slow
growth means it won't be buying as many raw materials to fuel that
growth. The news hit both the Australian and New Zealand dollars,
with both countries heavily involved in commodities exports.
December gold futures fell nearly $16 to $1,356.60 an ounce,
while November crude-oil futures dropped $1.14 to $81.99 a
barrel.
It also drubbed resource stocks in Europe.
In London, miners such as Xstrata PLC fell 3.8%, Fresnillo PLC
slid 2.4%, Vedanta Resources PLC lost 2.4% and Rio Tinto (RIO) fell
2.2%.
The FTSE 100 index fell 0.2% to 5,730.42.
Also weighing on the downside in London, shares of ARM Holdings
PLC fell 2.3%. Tech giants Apple (AAPL) and IBM (IBM) posted
better-than-forecast results on Monday, but shares fell in
after-hours trading. Apple disappointed over its outlook and iPad
sales, while for IBM the focus was on a fall in new contracts.
However, that was balanced by a 2.7% gain for Autonomy Corp. .
The company said third-quarter profit rose 22% on a sales gain of
9.9%. Autonomy sees "upside" to the current market consensus for
2011 earnings.
In Paris, the CAC 40 index fell 0.3% to 3,824.75, with shares of
Total SA (TOT) off 1.5% and tech stocks also weak there, with
Capgemini down 1.2% and Alcatel-Lucent off 1.1%.
Banks remained a bright spot for Europe amid a wave of key U.S.
earnings, such as Goldman Sachs (GS) and Bank of America (BAC).
Goldman topped expectations for earnings per share, while Bank of
America's loss widened.
Banks were drawing additional support after the Basel Committee
on Banking Supervision said it will let major European banks comply
with new rules on liquidity gradually over an "observation"
period.
In Paris, shares of Societe Generale SA rose 2.6% and Natixis SA
added 2.7%.
On the upside, shares of Royal Bank of Scotland (RBS) rose 2.4%
and shares of Barclays PLC (BCS) added 1.6%.
Deutsche Bank (DB) rose 2.2% and Commerzbank was up 1.2%, though
the German DAX 30 index stayed weak, off 0.3% to 6,498.85.
Shares of Munich Re gained nearly 0.7% on news that Warren
Buffett's Berkshire Hathaway Inc. (BRKA) lifted its stake in the
reinsurer to more than 10% and said it would buy more shares over
the next year.
Weighing on the downside in Germany, Infineon Technologies AG
fell 2.1% and SAP AG (SAP) lost 1.3%.
On the economic side, the ZEW German investor sentiment
indicator fell slightly more than forecast in October, to -7.2 from
-4.3 in September. ZEW said another decline for economic sentiment
shows that growth will likely slow in the next six months.
Blaabjerg said those numbers surprised him a bit. "Sentiment is
moving in the wrong direction. I've been saying for a long time
that you should look for Germany if you want to have a clue on
where Europe is going," he said, adding that Germany is probably
the only country holding up Europe right now.