Sun, Jun 13, 2004 - Page 10 News List

US interest rate rise fears hobble European markets


European equities ended with small losses in holiday-hit trade yesterday as speculation about faster US rate hikes weighed on investors, while French hotel operator Accor fell after a costly stake acquisition.

Accor fell 4.7 percent to 33.08 euros after it bought a nearly 30 percent stake in resort operator Club Mediterranee for 252 million euros ($302.5 million).

The deal values Club Med shares at 45 euros each -- a 31 percent premium over Thursday's closing price. Club Med's shares jumped 8.2 percent to 37.10 euros.

The FTSE Eurotop 300 index of pan-European blue chips eased 0.21 percent to 1,003.87 points while the narrower DJ Euro Stoxx 50 index was off 0.11 percent at 2,797.05 points.

Market sentiment was dominated by fears that inflationary pressures in the US could bring about sharp monetary tightening and put a brake on the world's largest economy.

Volume was light at about one billion euros, less than half the daily average, as activity remained muted with US financial markets closed for the state funeral of former president Ronald Reagan.

"I can't remember a quieter day. It's like pulling teeth," said David Buik of spread betting firm Cantor Index.

Despite indices closing lower, European markets racked up a fourth straight week of gains, rebounding from 2004 lows hit in May.

"We are advising clients to take whatever profits they have and bring down risks," said a Munich-based trader.

"Markets are just focusing on rates, terrorism and oil prices. Company profits have been solid, but there's a fear that these can't be sustained over next few quarters," he said.

Around Europe, the FTSE 100 was off 0.05 percent, Germany's DAX eased 0.2 percent and the CAC 40 shed 0.3 percent.

St. Louis Federal Reserve Bank President William Poole said Thursday that the Fed must raise rates faster than the market expects if inflation speeds up. He said that delaying Fed action would not help the US economy.

The Fed has held overnight interest rates at a 46-year low of 1 percent since last June, but it is widely expected to raise them by 25 basis points at its next meeting on June 29 and 30.

Next Tuesday's US consumer price report, which economists expect will show a monthly gain of 0.4 percent, will be closely watched by investors.

"A 25 basis points Fed Fund target hike is consensus, with concerns it could be as much as 50 basis points. However, following Fed Chairman Greenspan's widely discussed speech this week, expectations could change next week when the May CPI and PPI are released," JP Morgan strategists said in a note.

"Higher than expected inflation would be negative for equities -- investors are in no mood for surprises, in our opinion," they said.

Nokia rose 1.2 percent to 11.88 euros ahead of next week's launch of its first mainstream flip phone and a music player, as the world's top mobile phone maker attempts to claw back market share, which has been hit by its lack of new models.

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