European stocks hold steady; traders ignore US data


Sun, Jun 27, 2004 - Page 10

European stocks traded near opening levels Friday, with even a surprise downward revision to US first-quarter growth failing to shake investors from their torpor ahead of next week's US Federal Reserve decision.

"Near-term, we believe equity markets will remain in low-volume-driven doldrums, while the drum rolls continue in anticipation of the Fed policy statement," said European equity strategists at JP Morgan.

The Fed is widely expected to raise interest rates by 25 basis points Wednesday in its first rate hike in over four years.

Geopolitical worries may also resurface next week in the countdown to the US transfer of power to an Iraqi government. Traders said any escalation in violence could mean investors will remain risk-averse and seek out safe-haven plays.

At 4pm, the Dow Jones Stoxx 600 Index, which tracks Europe's 600 largest listed companies, was unchanged at 242.04. The Dow Jones Euro Stoxx Index, which tracks companies in countries that joined the common currency, was 0.1 percent lower at 222.45.

Commerzbank strategist Rolf Elgeti said the stage is set for equities to break out of their current trading range and move higher during the second half of the year.

"Perversely, the onset of Fed tightening could prove the catalyst," he said.

"We still see the Fed hiking rates by 25 basis points next week," said Steve Barrow, economist at Bear Stearns.

"However, any data showing upside to inflation is a worry, as the danger is that the Fed's `modest' tightening pace may have to speed up going forward," he cautioned.

Also throwing cold water on the outlook for global recovery, Germany's Ifo business confidence index came in below expectations, confirming that Germany is lagging behind other large European economies.

According to economists at Dresdner Kleinwort Wasserstein, the IFO survey suggests the European Central Bank's neutral policy stance is likely to continue. The ECB decides on interest rates Thursday, but the consensus expectation is for rates to be left on hold.

Healthcare stocks were underperforming across the region Friday.

GlaxoSmithKline fell 1.8 percent to £11.48 in London after Smith Barney downgraded the stock to hold from buy.

AstraZeneca retreated 2.2 percent to £25.01, leading decliners in London. Investors reacted to news that a US consumer group will open a new attack on the safety of its cholesterol lowering drug Crestor.

Housebuilders provided some support. Berkeley Group soared 28.71 percent to £11.97 in London after saying it plans to return money to shareholders as it focuses on urban regeneration projects. It also posted a 5 percent jump in full-year net profit.

The company's DHL unit plans to spend US$1.2 billion over the next three years to improve its US package-delivery network.

Among banking stocks, Abbey National jumped 2.0 percent to £4.97 as speculation over a possible bid by Spain's Santander revived.

Bradford & Bingley rose 2.4 percent to £2.7725 after the mortgage bank said it would meet market consensus forecasts for its first-half results and announced a round of job cuts as part of a cost-control program.

Credit Suisse shares rose 2.0 percent to 44.9 Swiss francs (US$36.2), leading gainers in Zurich. The company said Thursday that John Mack will resign as its co-chief executive next month. The departure comes after he clashed with some at the firm over his desire to pursue a merger with another financial-services company, suggesting Credit Suisse will continue its effort to remain independent.