World stocks slide before European interest rate calls

Agence France-Presse

Posted at Feb 05 2009 06:20 PM | Updated as of Feb 06 2009 02:20 AM

LONDON - Global equities mostly sank on Thursday, hit by more bad news on the banking sector and the US economy, as investors awaited crucial interest rate decisions in Britain and the eurozone.

In morning European trade, London dropped 0.97 percent, Frankfurt shed 1.18 percent and Paris tumbled 1.57 percent.

In Asia, Tokyo share prices dipped 1.11 percent, tracking overnight falls on Wall Street, but Hong Kong eked out a 0.9-percent gain.

Later Thursday, markets will digest keenly-awaited decisions on interest rates from the Bank of England (BoE) and the European Central Bank (ECB) at 1200 GMT and 1245 GMT respectively.

The BoE was widely expected to slash British interest rates by half a percentage point to a fresh historic low of 1.0 percent as it battles recession.

The ECB, meanwhile, was set to keep interest rates on hold at 2.0 percent, but analysts see it making another cut in March to help the eurozone economy which is also mired in recession.

"Markets have gravitated toward a 50-basis-point cut by the (BoE) and no cut by the ECB," said Citi analyst Jim McCormick in a research note.

Ahead of the rate calls, equities beat a retreat in Europe as negative banking-sector news hit traders' screens.

In Frankfurt, shares in Germany's Deutsche Bank fell 1.84 percent to 20.85 euros after it posted its first annual loss since World War II owing to a catastrophic fourth quarter, but vowed to survive the global financial crisis.

The stock had plunged 9.6 percent at the start of trading.

The German bank said it had made a net loss of 3.9 billion euros ($5.0 billion) in 2008, a figure that reached 4.8 billion in the fourth quarter alone. In 2007, Deutsche Bank had reported a record profit of 6.5 billion euros.

In Madrid on Thursday, leading Spanish bank Santander reported a nearly 22 percent fall in fourth-quarter net profit to 1.94 billion euros ($2.48 billion).

Santander's share price dropped 2.60 percent to 5.99 euros on Spain's Ibex-35 index which was down 1.58 percent. The bank also affirmed a 2.0-percent decline in annual net earnings to 8.87 billion euros, as signalled last month.

Elsewhere in Asia on Thursday, Hong Kong closed higher on Thursday as mainland stocks were buoyed by hopes of economic support from Beijing, but Shanghai shed 0.46 percent.

In Wall Street action on Thursday, the Dow Jones Industrial Average dropped 1.51 percent to close at 7,956.66 points, unable to hold early gains.

The market reacted to a survey from payroll firm ADP showing 522,000 private sector jobs lost in January, suggesting the labor market remains under heavy pressure from retrenching businesses.

Stocks perked up briefly after a survey on the vast US services sector, which makes up the bulk of economic activity, came in slightly better than expected.