European, US Markets Eke Out Gains But Italy Lags

Published December 27, 2011 3:00PM (EST)

PARIS (AP) — Stock markets in Europe and the U.S. eked out modest gains Tuesday in very light holiday trading but Italian shares dipped as the country's key borrowing rate ratcheted up to worrisome levels.

In the run-up to the Christmas holiday, investors have been cheered by a run of upbeat U.S. economic indicators, particularly related to the crucial shopping season — the Dow Jones index closed last Friday at a five-month high.

However, with the debt crisis in Europe still raging and growth expected to slow in China, investors have plenty to worry about and that's keeping a lid on trading Tuesday.

In Europe, France's CAC-40 rose 0.1 percent to 3,106 while Germany's DAX was up 0.3 percent at 5,898. The FTSE index of Britain's leading shares remained closed.

On Wall Street, the Dow Jones industrial average was up 0.1 percent at 12,200 while the broader S&P 500 index rose by an equivalent rate to 1,266.

One market bucking the trend in Europe was Italy's FTSE MIB, which was trading 1.3 percent lower as the yield on the country's ten-year bonds struck 7 percent once again — a level that is considered unsustainable in the long-run and eventually forced Greece, Ireland and Portugal into seeking outside financial help.

Italy is the eurozone's third-largest economy and is considered to be too big to save under current bailout facilities. Mario Monti, the country's new premier got Parliamentary approval last week for a big austerity package that is intended to save the country from financial disaster. Markets have grown increasingly fearful over the past few months that Italy will find it difficult to pay off its massive debts, which stand at around euro1.9 trillion ($2.5 trillion).

Despite ongoing worries over the spread of Europe's debt crisis to Italy, the euro was trading 0.1 percent higher too at $1.3070. London's closure has a big impact on currency trading.

However, analysts said the euro could face some choppy waters over the coming couple of days as Italy prepares for a couple of bond auctions on Wednesday and Thursday.

"The euro is little changed as markets look ahead to Italian government debt auctions later this week, which are likely to set the tone for the single currency and the wider foreign exchange market," said Vassili Serebriakov, a currency strategist at Wells Fargo Bank.

Markets took little notice of figures from the European Central Bank showing that Europe's banks parked a record euro411.8 billion ($538.2 billion) overnight at the bank on Monday.

Heavy use of the ECB's deposit facility has been a sign of distrust in interbank lending markets, as banks remain wary of lending to each other and prefer to hold it at low interest rates at the ECB. However, it can also rise and fall for technical reasons as banks adjust their liquidity requirements.

The spike is also said to be connected to last week's massive infusion of liquidity last week, when 523 banks took euro489 billion in central bank loans for as much as three years.

The narrow ranges across stock markets reflect light holiday trading conditions. Markets in Europe and the U.S. were closed Monday and trading is expected to be light most of this week though there could be some year-end movements, particularly on Friday as investors look to lock in any gains they may have made.

Earlier in the day, Asian shares fell after a disappointing profit performance by Chinese companies and a warning that Japan faces "significant downside risks" due to Europe's debt problems. That warning came from a Finance Ministry representative at a November Bank of Japan meeting, the bank said Tuesday.

Tokyo lost 0.5 percent to 8,440.56 while Seoul's Kospi shed 0.8 percent to 1,842.02. Taipei, Singapore and Jakarta also declined. Hong Kong and Sydney were closed.

China's benchmark Shanghai index dropped nearly 1.1 percent to 2,166.21 after the country's government reported that profit growth slowed at its major industrial companies. Total profit in the January-November period rose 24.4 percent over a year earlier, down 0.9 percent from the growth rate for the first 10 months of the year.

Oil markets were fairly subdued — benchmark crude for February delivery was up 14 cents at $99.82 a barrel in electronic trading on the New York Mercantile Exchange.


AP Business Writer Joe McDonald contributed to this report from Beijing.

By Salon Staff

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