European markets drop as US stocks erase early gains after firm opening

By PAN PYLAS | AP Business Writer

12:06 PM EST, November 21, 2008

LONDON (AP) _ European markets fell further Friday as early gains on Wall Street were wiped out amid mounting fears about the U.S. economy and the future of banking giant Citigroup Inc. in particular. Asian stocks closed mostly higher earlier in the day.

Despite opening some 150 points higher following Thursday's 445 point slide, the Dow Jones industrial average was up only 16.09 points, or 0.2 percent at 7,568.38. Meanwhile, the broader Standard & Poor's 500 index was 10.06 points, or 1.3 percent, higher at 762.50, having ended Thursday at 752, its lowest close since April 1997.

European stocks, which had not suffered as much as their U.S. counterparts on Thursday, tumbled on the renewed selling on Wall Street, with the FTSE 100 index of leading British shares closing down 94.03 points, or 2.4 percent, at 3,780.96. Germany's DAX was down 92.79 points, or 2.2 percent, at 4,127.41 while the CAC-40 in France was down 99.16 points, or 3.3 percent, at 2,881.26.

Earlier, Asian markets recouped early losses in the wake of Thursday's sell-off on Wall Street to end up in positive territory. Japan's Nikkei 225 stock average rose 207.75, or 2.7 percent, to 7,910.79, and Hong Kong's Hang Seng index jumped 2.9 percent to 12,659.20.

Despite the earlier Asian gains, stock markets are generally on a renewed downtrend, ending the week sharply lower than where they started.

"Concerns of a more severe recession than expected, the return of deflation fears and the lack of new effective initiatives taken by policymakers are pushing investors to sell higher-risk assets," said Calyon analyst Herve Goulletquer.

This week's jitters were stoked primarily by concerns about the futures of Citigroup Inc. and the U.S. car industry.

Citigroup's future remains up in the air despite a report that said the banking giant was considering a sale to rebuild investor confidence.

The New York-based bank is scheduled to hold a board meeting Friday to discuss whether to sell all or part of itself, The Wall Street Journal reported.

But as no hard news emerged from the company about that possibility, Citigroup's shares tumbled below $4 a share to their lowest level in more than 15 years. That extended a sharp, weeklong plunge that could not be stemmed by Saudi investor Prince Alwaleed bin Talal's decision Thursday to raise his stake in the company to 5 percent from less than 4 percent.

Investors have been worried that losses from souring debt will swamp banks, even those given financial support from the government's $700 billion rescue plan. Citigroup, in particular, is a source of big concern for the markets as the company hasn't turned a profit in the past four quarters, unlike rivals such as JPMorgan Chase & Co. and Bank of America Corp.

European investors were also spooked by a survey showing that the recession in the euro-zone may be deeper than many feared. The monthly preliminary estimate of the purchasing managers index for the manufacturing sector slumped to a record low of 36.2 in November from 41.1 the previous month, while the equivalent estimate for the services sector also dropped to a record low, at 43.3 in November from October's 45.8.

Earlier in Asia, South Korea's Kospi surged 5.8 percent and Australia's market closed up 1.9 percent after initially falling more than 3 percent. But mainland China's Shanghai Composite index slipped 0.7 percent and markets in the Philippines and Indonesia also sank.

Financial, real estate and technology stocks led the recovery in Asia, particularly in Hong Kong, where HSBC Holdings PCL jumped 4.5 percent, China Construction Bank Corp. rose 6.7 percent and Standard Chartered Bank increased 4.5 percent.

Oil prices, which have fallen to a third of their July peak, edged up in London trading. Light, sweet oil for January delivery rose 30 cents to $49.72 a barrel on the New York Mercantile Exchange after earlier falling as low as $48.25, the lowest since May 2005.

In currencies, the dollar rose 1.3 percent to 94.81 yen while the euro was up 1.1 percent at $1.2579.

___

AP Business Writers Tim Paradis in New York and Stephen Wright in Bangkok contributed to this report.