Posted on 07/30/2002 3:33:14 AM PDT by blam
Stock Rally Runs Into Sand
Tue Jul 30, 6:01 AM ET
By Gerrard Raven
LONDON (Reuters) - A spectacular stock market rally shuddered to a halt in Europe on Tuesday, leaving investors divided over whether the tide has finally turned on the grimmest bear run for decades.
But with Wall Street staging a dizzying revival overnight, the dollar pushed ahead to erase more of its recent losses.
The 24 hours before European markets opened had provided investors despairing at their dwindling fortunes with the recently elusive elixir of hope.
The FTSE Eurotop 300 index ended Monday 5.9 percent higher, its largest gain for at least 15 years.
The baton passed to Wall Street where the Dow Jones index posted its third largest gain ever of 5.41 percent. Tokyo then took up the running with its Nikkei average rising 3.49 percent to end just above the psychological 10,000 level.
But despite some good corporate results, an initial rally in Europe rapidly faded and by 5:33 a.m. EDT, the Eurotop 300 was little changed.
Futures also indicated that Wall Street would start trading modestly lower ahead of the publication at 10 a.m. EDT of the U.S. Conference Board ( news - web sites) consumer confidence survey for July.
Analysts were divided as to whether the two-year share market downtrend was finally over.
"A two-way market is beginning to appear but I'm not altogether convinced by this rally -- the newsflow is not yet good enough to sustain the gains," said David Thwaites, pan-European equities strategist at BNP Paribas.
On the other hand, Gert de Mesure, head of equity strategy at Delta Lloyd Securities in Antwerp said, "I see no reason why stocks in Europe should not extend their recovery,"
The good news came from Germany's Volkswagen, whose shares rose 5.7 percent after it reported second quarter profit up 13.5 percent and France's Havas Advertising, up 1.9 percent after it said it was expecting a rebound in operating profitability.
Banco Santander Central Hispano, Spain's biggest bank, was among the heaviest losers, being down 6.5 percent after Goldman Sachs cut its recommendation to "market perform" from "market outperform."
U.S. CONSUMER SURVEY KEY
The Conference Board consumer survey could determine the near-term market direction in the United States.
Economists are expecting a fall in the index to 101.9 from 106.4 on the back of the recent drop in stocks and the accountancy scandals largely responsible for them.
Second quarter U.S. economic growth data out on Wednesday will also affect the mood on the recently febrile markets, and determine the direction of both stocks and the dollar.
Ahead of these two indicators, however, the greenback continued to make gains, reaching three-week highs against the yen and keeping the recently perky euro within a third of a cent of recent three week lows around $0.98.
After reaching 120.30 yen in early European trade, the dollar had fallen back to around 119.55 by 5:25 a.m. EDT.
"Equity markets have prompted a turnaround in recent negative sentiment toward dollar assets," said Shahab Jalinoos, currency strategist at UBS Warburg.
"While long-term threats to the dollar remain, it is now recovering from a very oversold position."
Euro zone government bond yields continued to take their cue from stock markets, reaching one-week highs in early trading, but paring their gains as stocks drooped.
By 5:30 a.m. EDT, the yield on the interest rate sensitive two-year German Schatz was unchanged at 3.713 percent. The equivalent U.S. Treasury note was yielding 2.3546 percent, down 3.6 basis points.
Recently weak gold was trading around $1-1/2 up from New York's close at 304.00/304.50 an ounce.
Increased tensions over Iraq and expectations of lower U.S. crude stocks figures pushed oil up, with Brent crude for September delivery up 28 cents in London at $25.28 a barrel.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.