European stocks slip as investors ponder China, US rates

Europe's main stock markets dipped Monday as investors still rattled by last week's turmoil ponder China's slowing economy and potential US interest rate moves.

The CAC 40 in Paris slipped 0.52 percent to 4,650.90 points in early afternoon trades, and Frankfurt's DAX 30 lost 0.67 percent to 10,229.60 points compared with Friday's close.

London's stock exchange was closed for a national holiday.

Global equities were hammered last week as risk-averse investors dumped shares on spreading panic that the flagging Chinese economy -- the world's second largest -- could spark a new worldwide recession.

Markets took much of that back in late-week gains on encouraging US economic news.

But lingering concerns about China and comments over the weekend by US Federal Reserve officials that the severe market turbulence caused by Chinese slowing could affect a rate rise in September, analysts said.

"The change in the circumstances which began with the Chinese devaluation is relatively new and we are still watching how it unfolds. So I wouldn't want to go ahead and decide right now," Fed vice chairman Stanley Fischer told CNBC over the weekend.

Interpretation of Fischer's comments varied greatly, as markets and analysts alike looked for visibility on both the timing and likely consequences of an increase of US rates from their historic low levels.

"Despite the recent market turbulence, it would appear that an interest rate increase in September still remains on the cards. It continues to depend on the strength of incoming economic data, of which the (US) employment report at the end of this week is the most important," said Juliet Tennent, an economist with brokerage Goodbody of an official jobs report due on Friday.

But financial services company Cantor Fitzgerald in a note Insisted "a move in September is firmly off the table given recent volatility and (we) believe December at the very earliest is more likely at present."

"The markets are waking up to the reality that there is no clear direction being set by the bankers or the Fed.  After all the talk the market is still uncertain about September’s meeting," added Nour Al-Hammoury, chief market strategist at ADS Securities.

- 'Need a reason to panic' -

The issue of the rate rise is of importance to markets beyond what the move would say about the improving US economy.

The historically low US interest rates of recent years have fuelled investment in global stock markets because they have made it cheap to borrow money for speculation.

A rise would likely tamp down that appetite, and continue fuelling investment out of slowing emerging economies and back into dollar-denominated US options yielding higher returns.

The continuing suspense over rates helped lift the euro to $1.1204 on Monday from $1.1188 late Friday.

Asian markets were mostly dragged lower Monday by Shanghai resuming last week's decline to finish down by 0.82 percent. Tokyo stocks fell 1.28 percent while Sydney lost 1.07 percent.

European indices followed that nervous lead .

"Markets have opened the week on a fairly bearish note, with China seemingly at the heart of the concern again," said IG Markets chief market strategist Chris Weston, who also pointed to Fischer's comments for the jitters.

"Have markets opened on a negative footing because he caused another twist in the 'will they hike in September' question?...  It seems like we simply need a reason to panic these days."