An unexpected decline in a closely-watched gauge of U.S. consumer confidence weighed on stocks Tuesday even though it did little to dampen expectations that the U.S. economic recovery is picking up steam.
The Conference Board reported that its main consumer confidence index fell to 52.5 in December from an upwardly revised 54.3 the previous month amid ongoing concerns over jobs. The decline was unexpected _ the consensus in the markets was for the index to push up to 56.
Though stock markets in both Europe and the U.S. pushed lower following the survey, the response was fairly muted because the it contrasted with the general thrust of recent economic data out of the U.S., especially after the agreement between the Obama administration and the Republicans in Congress to extend due-to-expire tax cuts.
"We expect an uptrend in consumer spirits to remain in place for the foreseeable future," said Joshua Shapiro, chief U.S. economist at MFR Inc.
In Europe, France's CAC-40 was barely a point lower at 3,861.32 while Germany's DAX was around 9 points lower at 6,961.85. British markets were closed for a holiday.
In the U.S., the Dow Jones industrial average was down 7.27 points at 11,547.76 soon after the open while the broader Standard & Poor's 500 index fell less than a point to 1,256.86.
Aside from the state of the U.S. economy, investors continued to evaluate the effects of China's decision over the weekend to raise its key interest rate by a quarter of a percentage point to 5.81 percent _ its second increase in just over two months.
The Chinese monetary authorities are getting increasingly fidgety about rising prices and the hope is that higher borrowing costs will rein in inflation, which spiked to a 28-month high in November of 5.1 percent.
However, higher interest rates could well dampen down economic growth. That's important for the world economy, because China has been a key motor over the past couple of years.
"Though the timing of the rate hikes may have come as a surprise, many analysts were anticipating China to move higher with interest rates and they are expected to continue to do so," said Eric Viloria, an analyst at Forex.com.
The surprise decision continued to weigh on Chinese stocks, and the Shanghai Composite Index fell 1.7 percent to close at 2,732.99, while Hong Kong's Hang Seng index shed 0.9 percent to end at 22,621.73,
Japan's benchmark Nikkei 225 stock average declined 63.36 points, or 0.6 percent, to finish at 10,292.63 amid renewed worries over a strengthening yen _ a higher yen makes it more difficult for Japan's exporters to compete in international markets.
For the third straight day, Japanese officials, including finance minister Yoshihiko Noda voiced their worries about the yen's strength.
As a result, investors will be on the lookout for any actual intervention in the markets by the Japanese authorities. In September, the Bank of Japan bought dollars and sold yen for the first time in six years in the hope of putting a ceiling, at the very least, on the yen appreciation.
By mid afternoon London time, the dollar was down 0.8 percent at 82.13 yen while the euro fell 0.1 percent to $1.3155.
Benchmark oil for February delivery rose 24 cents to $91.24 in electronic trading on the New York Mercantile Exchange.
AP Business Writer Kelvin Chan in Hong Kong contributed to this report.