Stocks down on fragile debt optimism

Stocks fell on Friday as optimism over Germany’s approval for a beefed-up European rescue fund faded and investors closed trades ahead of the end of the fiscal quarter, which has seen the biggest losses since 2008, when the world was heading into its deepest recession since World War II. Though the German Parliament’s support of an expanded bailout facility on Thursday has helped soothe some concerns over Europe’s debt crisis, investors are aware that there are many hurdles ahead, not least the possibility of a Greek debt default. That has weighed on bank stocks in Europe, not least France’s Societe Generale, which was down around 9 per cent. However, much of on Friday’s trading activity is being influenced by the confluence of the month and quarter-end. Many fund managers try to get their portfolios to look as healthy as possible at such junctures and that prompts some volatility. In Europe, the FTSE 100 index of leading British shares was down 2.3 per cent to 5,078 while Germany’s DAX fell 2.8 per cent to 5,484. The CAC-40 in France was 2.2 per cent lower at 2,962. In the US, the Dow Jones industrial average was 1.1 per cent lower at 11,036 while the broader Standard & Poor’s 500 index fell 1.6 per cent at 1,142. A solid survey of consumer confidence from the University of Michigan and a better than expected gauge of business activity in and around the Chicago region did little to help stocks shake off their September-end malaise. On Thursday, investors had been cheered by some upbeat US figures as well as the German ‘yes’ vote. In the currency markets, the euro failed to react to a surprisingly big increase in inflation to 3 per cent in the year to September in the 17 countries that use the euro. The euro was trading 1.1 per cent lower at $1.3438. Under normal circumstances the increase may have prompted a euro rebound as investors priced in a lower probability of a rate cut next week from the European Central Bank. However, investors are worried about the growth outlook in Europe more than anything else and keeping rates high for longer than anticipated is likely to pinch the economy. Earlier in Asia, Japan’s Nikkei 225 swung between gains and losses before closing fractionally lower at 8,700.29. South Korea’s Kospi also was in and out of positive territory before settling marginally higher at 1,769.65. Shares in Hong Kong, Shanghai and Shenzhen sank after data showed China’s manufacturing continued to stagnate in September. Hong Kong’s Hang Seng slumped 2.3 per cent to 17,592.41. Mainland’s Shanghai Composite Index fell 0.3 per cent to 2,359.22 and the smaller Shenzhen Composite Index lost 0.2 per cent to 1,004.52.  ( from The Gulf Today )