European stocks slip (AFP)
22.09.2008 13:55 Business
Frankfurt, London and Paris fell after dramatic fluctuations last week that culminated in the emergence of a costly US initiative to bail out the distressed financial sector.
The US Congress was due to consider an unprecedented 700-billion-dollar rescue plan to buy bad mortgage-related assets from financial institutions, and draw a line under last week's markets chaos that saw the demise of US investment bankLehman Brothers and sale of peer Merrill Lynch.
"The Fed's bail-out plan continues to take shape although the big issue here is what is a good deal for the banks will arguably be a bad one for taxpayers," said CMC Markets dealer Matt Buckland.
He added: "Just how sustainable the rally in equity markets will be as a result remains to be seen as this stands to heap further economic woes on the US market, especially consumers."
At the same time, the US Federal Reserve has agreed to allow investment banksGoldman Sachs and Morgan Stanley to become bank holding companies, giving them easier access to credit and help them survive the current crisis.
On Monday, London's FTSE 100 index of leading shares dipped 0.63 percent, the Paris CAC 40 slid 0.51 percent and Frankfurt's DAX 30 shed 0.34 percent.
"Attention this week will focus on the specifics of the US authorities' plans aimed at stabilising financial markets," added Barclays Capital analysts in a research note to clients.
Asian share prices rallied on the back of the plan, with some markets also getting a sharp lift from domestic regulatory measures, but investors remained uncertain about the precise details of the initiative.
"Holders of equities may have to come down to earth and realise the enormity and complexity of the rescue plan -- the devil is in the details and the (US) politicians in Capitol Hill may balk at the sum involved," said analysts at Singapore brokerage CIMB.
The markets getting the sharpest boost -- Australia and China -- both benefitted from domestic measures on top of Friday's Wall Street rally that greeted the plan.
Australian shares closed up 4.5 percent after the corporate regulator banned all forms of short selling in a bid to curb volatility.
Australia's restrictions go further than those announced in the markets in the US and Britain, which cover only financial stocks.
Short-selling occurs when investors sell borrowed shares in order to profit later from an anticipated fall in prices -- often contributing to the price fall.
French stock market authorities meanwhile said they were also tightening their rules on short-selling.
The British and French markets had recorded their largest-ever daily gains on Friday, winning 8.84 percent and 9.27 percent respectively. Over the whole of last week, marked by wildly volatile trading, all three main European stock markets finished in negative territory.
"After such a strong run on Friday the usual argument would be to wary of profit taking but with the markets having come off so far in the days before this, any downside pressures driven by sentiment could be limited," Buckland added.
Elsewhere on Monday, Japanese shares closed up 1.42 percent, down from early highs as markets digested the plan to mop up Wall Street's billions of dollars of bad debt, dealers said.
Asia's largest bourse was cautious ahead of a national holiday in Japan on Tuesday.
But China was another market to benefit from domestic regulatory moves, as the securities regulator announced plans for further stimulus measures to boost the stock market.
The key index closed up 7.77 percent after the securities regulator proposed relaxing rules on share buy-backs.
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