European stocks mixed on US debt woes; euro falls

LONDON: European stocks markets were mixed on Thursday, weighed down by debt strains in the United States, but reassured by earnings news while the euro fell against the dollar.

London's benchmark FTSE 100 index of top shares was up 0.28 percent at 5,873.21 points.

In Frankfurt, the DAX fell 0.86 percent to 7,190.06 points and in Paris the CAC 40 dropped 0.57 percent to 3,712.66 points.

The European single currency fell to $1.4309 in London deals from $1.4363 late in New York on Wednesday. The dollar dropped to 77.83 yen from 77.96 yen.

The decision by Standard & Poor's to further downgrade Greece's credit rating weighed on sentiment, especially on the foreign exchange market.

While the downgrade and default warning was not unexpected, the ratings agency put more pressure on eurozone leaders and private investors to finalise the exact framework of the second rescue agreed last week.

"The single currency has been the worst performer today...as higher borrowing costs in an Italian auction weighed on the currency this morning. Rumours that the Italian finance minister had resigned also weighed on sentiment," Michael Hewson, market analyst at CMC Markets said.

Italy came under fire amid signs of government infighting and fears the eurozone's third biggest economy could join Greece, Ireland and Portugal into a debt spiral.

"The euro is turning into a currency 'non grata' at present. But things are not looking any better on the other side of the Atlantic either: the political toing and froing about an increase of the debt ceiling continues and the economic recovery remains subdued," said Commerzbank.

The White House and Democrats and their Republican rivals continue to bicker over a deficit-slashing plan that would allow a hike in the US debt ceiling, despite the government running out of money to pay its bills within a week.

The House of Representatives is due later Thursday to take up Republican Speaker John Boehner's plan for raising the $14.3 trillion debt limit, although it will likely fail due to a White House veto threat.

Will Hedden, sales trader at IG Index said: "Equity markets have walked back from the edge of the cliff after yesterday's opening of the floodgate, but we are definitely entering unknown territory here. This is clearly playing on investors' minds as nobody is quite sure how big a deal the effect of a US default will be."

Investors were also closely following the second-quarter earnings season, which is in full flow across the globe and "despite a subdued performance for much of the day the FTSE 100 headed into positive territory just before the close," Hedden said.

In London, Royal Dutch Shell said that net profits almost doubled to $8.6 billion (6.0 billion euros) in April-June as improved income from high oil prices offset a drop in output. However its share price was slightly down 0.62 percent at close.

In Frankfurt, Volkswagen shed 4.17 percent even though Europe's biggest car maker said its net profit tripled in the first half.

Investors were disappointed that VW did not give a detailed increased outlook for the year however.

French telecom equipment group Alcatel-Lucent meanwhile plunged 15.33 percent as its return to profit in the second quarter was weaker than expected.

The company was back in the black after years of problems, with net profits of 43 million euros ($62 million) from April to June.

Asian markets also fell on Thursday, following big losses overnight on Wall Street, as the deadline approaches for US lawmakers to strike a deal to avoid a disastrous default.

Copyright AFP (Agence France-Presse), 2011