European markets trim gains after soft US open at month-end

European markets trim gains on soft US open

LONDON — European stock markets trimmed earlier gains Friday, while Wall Street showed little momentum on the open, after official data revealed a smaller than anticipated upward revision in first quarter U.S. economic output.

In Europe, the FTSE 100 index of leading British shares was up 74.53 points, or 1.7 percent, at 4,462.06 while Germany’s DAX rose 27.66 points, or 0.6 percent, to 4,960.54. The CAC-40 in France was 14.32 points, or 0.4 percent, higher at 3,278.02.

The gains in Europe, aside from the FTSE, had been more substantial but a subdued opening on Wall Street prompted investors to limit their exposure going into the month’s end — a traditionally volatile period for stock markets as investors square up positions and book profits.

The Dow Jones industrial average was up 29.15 points, or 0.4 percent, at 8,432.95 soon after the open while the broader Standard & Poors’ 500 index rose 4.63 points, or 0.5 percent, to 911.46.

Futures markets had been predicting a far more solid opening after the Commerce Department said the U.S. economy, the world’s largest, contracted by an annualized rate of 5.7 percent in the first quarter, better than the initial 6.1 percent prediction. However the new reading was slightly worse than the 5.5 percent drop economists were forecasting.

“The revision, whilst in the right direction, is not as large as the consensus expectation,” said Richard Snook, senior economist at the Centre for Economic and Business Research in London. “The figures therefore may receive a frosty welcome from global equity markets and put further downward pressure on the dollar.”

World stocks had been buoyed earlier in the day following encouraging economic news from Asia and signs that the U.S., the world’s largest consumer of crude, is showing an increase in demand.

In Japan, industrial output jumped 5.2 percent in April as companies raised production following drastic cutbacks because of the unprecedented drop in demand late last year. And India’s economy grew 5.8 percent in the first three months of 2009 from a year earlier, the same rate as the previous quarter, but much better than many economists had expected.

Also buoying stock markets was the news Thursday that U.S. oil inventories dropped unexpectedly by 5.4 million barrels last week. Though crude inventories remain near 19-year highs, it was the third week in a row that supplies have fallen.

The inventory data helped crude prices rise to six-month highs. Benchmark crude for July delivery as up 63 cents to $65.71 a barrel, following the $1.63 rise overnight.

Nevertheless, analysts cautioned that the sustained increase in the price of oil coupled with an increase in long-term U.S. interest rates have the potential to derail a global economic recovery.

As a result, stock markets this week have been extremely volatile.

Despite the recent lull — the Dow has lost ground for five out of the last seven days — stocks around the world have rallied strongly over the last few weeks, with some major indexes moving into positive territory for the year.

The trigger for the gains has been better than expected economic news, particularly in the U.S., which has fueled an increase in appetite for risk on hopes that the global recession is receding. Stock markets usually start recovering 6 to 9 months before an actual economic recovery emerges.

Earlier in Asia, Japan’s Nikkei 225 stock average gained 71.11 points, or 0.8 percent, to 9,522.50 while Hong Kong’s Hang Seng added 285.73, or 1.6 percent, to 18,171.00.

South Korea’s Kospi was up 0.3 percent, and Australia’s key index climbed 1.7 percent. Financial markets in mainland China and Taiwan were closed Friday for a holiday. India’s Sensex advanced 2.3 percent.

The dollar fell 1.4 percent to 95.44 yen while the euro was up 1.4 percent over the day at $1.4140 despite the news that inflation in the euro zone fell by more than anticipated in May. The European Union’s first estimate of 0.0 percent inflation was down from the 0.6 percent increase recorded in April and analysts’ forecasts for a 0.2 percent rise.

Hans Redeker, global head of foreign exchange research at BNP Paribas, said the euro’s move higher emerged in Asia after South Korea’s National Pension System reportedly said it was considering diversifying its holdings of dollar assets into other currencies.

“This is the first out-right confirmation by a large Asian institution to signal a desire to diversify out of dollars,” said Redeker.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.