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Soft US data punctures post Bernanke stock boost

Businessmen check the day's stock prices on an electric board in Tokyo Thursday, Oct. 14, 2010. Asian stock markets advanced Thursday, lifted by better-than-expected earnings results from U.S. corporate bellwethers and growing expectations for action by the U.S. Federal Reserve to spur growth. Japan's benchmark Nikkei 225 stock index jumped 163.02 points, or 1.7 percent, to 9,568.73. Businessmen check the day's stock prices on an electric board in Tokyo Thursday, Oct. 14, 2010. Asian stock markets advanced Thursday, lifted by better-than-expected earnings results from U.S. corporate bellwethers and growing expectations for action by the U.S. Federal Reserve to spur growth. Japan's benchmark Nikkei 225 stock index jumped 163.02 points, or 1.7 percent, to 9,568.73. (AP Photo/Shuji Kajiyama)
By Pan Pylas
AP Business Writer / October 15, 2010

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LONDON—Weak U.S. consumer confidence figures dented confidence in the stock markets Friday, which had earlier been buoyed by comments from Federal Reserve chairman Ben Bernanke that the central bank stands ready to loosen monetary policy again in an attempt to shore up the U.S. economy.

In Europe, the FTSE 100 index of leading British shares closed down 23.84 points, or 0.4 percent, at 5,703.37 while France's CAC-40 rose 8.2 points, or 0.2 percent, to 3,827.37. Germany's DAX ended 37.03 points, or 0.6 percent, higher at 6,492.30.

In the U.S., the Dow Jones industrial average was down 26.68 points, or 0.2 percent, at 11,067.89 around midday New York time, while the broader Standard & Poor's 500 index rose less than 0.1 percent to 1,174.73.

U.S. stocks had opened higher as Bernanke's address was widely interpreted as a confirmation that the Fed will sanction another round of so-called quantitative easing, but a survey from the University of Michigan reignited fears about the pace of the U.S. economic recovery.

Its main index unexpectedly fell to a three-month low of 67.9 in October from 68.2 in October -- the consensus in the markets was that sentiment rose modestly to 69.

"The continued low level of confidence certainly doesn't bode well for fourth-quarter consumption and beyond," said Paul Dales, U.S. economist at Capital Economics.

Though the survey clearly would provide the Fed with more ammunition to back another monetary stimulus, investors are concerned that the economic backdrop is even worse than they feared -- after all, stocks are a barometer of economic expectations a few months ahead.

Bernanke certainly said enough to show that he, at least, is ready to back further measures -- in effect, Bernanke is prepared for the Fed to buy even more assets from the banks in the hope that they will lend it out to cash-strapped businesses and households.

"There would appear -- all else being equal -- to be a case for further action," Bernanke said.

Whether others, like Fed rate-setter Thomas Hoenig, are prepared to keep their opposition quiet is another matter -- the worry is that more money swirling around the system will stoke inflationary pressures and undermine the dollar.

Bernanke's comment that the Fed has to proceed with caution and communicating its strategy with more clarity was widely seen as a sop to Hoenig and potentially other members on the Federal Open Market Committee.

Marc Ostwald, markets strategist at Monument Securities, said there's a risk that the policy could backfire, "given the unsettling aspect on markets of having a substantive grouping undermining the intentions associated with doing more QE....compromise thus appears likely to be of the essence, and as such a very close eye needs to be kept on all Fed comments in the next couple of week."

An official announcement that the Fed is ready to buy more financial assets in an attempt to drive down rates on mortgages, corporate loans and other debt in the ultimate hope of boosting economic activity and supporting prices, is expected to be announced on Nov. 3 after the conclusion of the next rate-setting meeting.

Analysts said the scale of the Fed's buying will depend on how the economic figures are in the run-up to the rate-setting meeting.

Stocks have been buoyant over the last few weeks as investors have priced in the growing likelihood that the Fed would join the Bank of Japan in easing monetary policy further.

Though the prospect of more dollars in the financial system has been a boon to stocks, the dollar has tanked.

The turnaround in stock markets helped the dollar recover earlier losses in the wake of Bernanke's comments -- the dollar has recently moved in an opposite direction to stocks, largely because of its widely-percieved status as a safe haven currency.

By late afternoon London time, the euro was 0.2 percent lower on the day at $1.4044, while the dollar was down 0.3 percent at 81.23 yen, having fallen below 81 yen in the immediate aftermath of Bernanke's comments.

Earlier, Asian stocks had been helped by expectations that Beijing plans on boosting domestic spending, with the Shanghai index jumping over 3 percent to 2,971.16.

However, Japan's benchmark Nikkei 225 stock average ended 83.26 points, or 0.9 percent, lower to 9,500.29 amid ongoing concerns about the export-sapping appreciation of the yen.

Hong Kong's Hang Seng index fell 0.4 percent to 23,757.63 and Australia's S&P/ASX 200 closed down 0.2 percent at 4,689.00.

Benchmark crude for December delivery was down 45 cents at $82.24 a barrel in electronic trading on the New York Mercantile Exchange.

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Associated Press Writers Carlo Piovano in London and Alex Kennedy in Singapore contributed to this report.