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World markets book profits after Bernanke warning

World markets book profits after Bernanke warning

European and U.S. stock markets mostly fell Tuesday as investors booked some profits following recent hefty gains after U.S. Federal Reserve chairman Ben Bernanke said the recovery of the world's largest economy would be slow.
In testimony to lawmakers, Bernanke warned that unemployment will continue to rise even after the economy starts to pick up as the projected growth rates will be below the long-run average for a while.
That moderately downbeat assessment punctured some of the enthusiasm that has gripped stock markets over the last few weeks, especially as they face two big hurdles this week _ the results of the U.S. government's stress tests into the country's 19 biggest banks and the latest unemployment figures.
In Europe, Germany's DAX closed down 49.42 points, or 1 percent, at 4,853.03 while France's CAC-40 declined 12.97 points, or 0.4 percent, to 3,225.
However, Britain's FTSE 100 index of leading British shares closed 93.72 points, or 2.2 percent, higher at 4,336.94 _ it outperformed its counterpart as it played catch-up after being closed the day before when investors reaped big gains.
On Wall Street, the Dow Jones industrial average was down 22.70 points, or 0.3 percent, at 8,404.04 while the broader Standard & Poor's 500 index fell 6.3 points, or 0.7 percent, at 900.94.
Despite the modest declines Tuesday, analysts think the markets remain primed to move higher given the underlying improvement in risk appetite witnessed across a whole range of assets, and not just stocks. Earlier, figures showed that the three-month interbank lending rate in dollars fell below 1 percent for the first time ever _ a further sign that the credit markets may be thawing following unprecedented liquidity injections and massive interest rate cuts from the Fed.
"Sentiment remains positive, even though the market does look overbought at current levels," said Tim Hughes, head of sales trading at IG Index.
"Despite the over-heated nature, any weakness at the moment persists in just bringing out more buyers, so while the market looks ripe for a downward correction, any dips are still expected to be short-lived," he added.
The focus of attention over the rest of the week will be mainly in the U.S. The results of the stress tests into the 19 banks are due to be published Thursday, though executives at the banks are set to receive private briefings Tuesday.
Reports have surfaced indicating that Citigroup Inc., Bank of America Corp. and Wells Fargo & Co., as well as a handful of regional banks, will be among that group. On Tuesday, the Wall Street Journal said about 10 of the 19 banks undergoing the tests will be required to boost their capital levels as a buffer against potential future losses. The report cited several unidentified people familiar with the matter.
The losses Tuesday represent a modest dent on the recent uptick, which has been fueled by mounting hopes that the global economy may start to recover later this year. In particular a run of better than expected U.S. economic data have indicated that the worst of the recession in the world's largest economy may have run its course.
A survey from the Institute for Supply Management Tuesday reinforced that belief. Its main index into the services sector rose 2.9 points to a six-month high of 43.7. Though higher, the sector still remains mired in recession as any reading below 50 indicates contraction.
The biggest data event of the week will be Friday's U.S. nonfarm payrolls report for April, with economists predicting that another 600,000 jobs were lost during the month alone.
Though unemployment is a lagging indicator, continued big rises will further restrain spending at a time when households and businesses are trying to save more of their money to see them through the recession.
As a result, many analysts think the markets may be overestimating the speed and scale of the economic rebound in the wake of the slight improvements seen in the economic news over recent weeks _ stock markets usually rally around six to nine months before real evidence of an economic recovery.
"Equity investors are rather like travelers lost in the desert," said Stephen Lewis, an analyst at Monument Securities.
"They come across a discarded water-bottle in the sands and are delirious with joy when they find they can squeeze out a few drops of liquid to slake their thirst," he added.
Earlier in Asia, Hong Kong's benchmark Hang Seng index flitted in and out of positive territory to end the day up 49.03 points, or 0.3 percent, at 16,430.08. Mainland China's benchmark Shanghai Composite Index also edged up 0.3 percent to a nine-month high close of 2,567.34, as property shares fed expectations that the economy may be poised for recovery.
Australia's main index climbed 0.2 percent to 3,890.40, while Singapore's Straits Times index rose 2.3 percent.
Financial markets in Japan, South Korea and Thailand were closed for national holidays.
Oil prices fell modestly with benchmark crude for June delivery down 71 cents to $53.76 in electronic trading on the New York Mercantile Exchange.
In currencies, the dollar was down modestly at 98.80 yen from 98.85, while the euro fell to $1.3364 from $1.3419.
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AP Business Writer Elaine Kurtenbach in Shanghai contributed to this report.


Updated : 2020-12-04 10:58 GMT+08:00