European markets trim gains and US opens lower on mixed earnings

European markets trim gains, US opens lower

LONDON — European stock markets gave up earlier gains while Wall Street opened lower Friday as investors booked profits accumulated this week and considered mixed signals from U.S. earnings.

In afternoon European trading, the FTSE 100 index of leading British shares was up 0.7 percent at 4,392.12 and France’s CAC 40 rose 0.8 percent to 3,224.37. Germany’s DAX added 0.5 percent to 4,982.43, having earlier broken through the 5,000 level for the first time in a month. Europe’s markets had been around 1 percent higher earlier in the session.

After four straight days of gains, the Dow Jones industrial average fell 0.1 percent to 8,703.28 and the Standard & Poor’s 500 index lost 0.4 percent to 937.40 in morning trading in New York.

Bank of America Corp. and Citigroup Inc. became the latest banks to report big second-quarter profits, but both showed continued weakness in loan portfolios. General Electric Co. beat earnings forecasts but its revenues came up short.

Investors have been keenly focused on earnings reports this week, hoping to find more concrete signs of life in the economy and validation that the strong rally in stocks this spring was justified.

Strong earnings from four of the largest U.S. banks have been encouraging, but there is still evidence that the recession’s grip hasn’t eased as much as hoped.

Still, investor haven’t lost their appetite for stocks after better than expected U.S. second-quarter corporate earnings, not least from technology bellwethers IBM Corp. and Google Inc. Their strong after-hours statements reinforced hopes that the worst of the recession is over.

Additionally, construction of new U.S. homes rose in June to the highest level in seven months, a sign builders are starting to regain confidence as they emerge from the housing bust.

The Commerce Department said construction of new homes and apartments jumped 3.6 percent in June to 582,000, the highest level in seven months and better than the 530,000 economists expected. It was the second straight increase after a record low in April.

“Even after the rebound over the past two months, starts are still only a quarter of what they were at the height of the boom back in 2005,” said Paul Ashworth, senior U.S. economist at Capital Economics. “Furthermore, the end may be in sight but, because of the inherent lags in the construction process, overall housing activity will continue to fall for at least another six months,”

Though equity markets have enjoyed a strong run this week, investors are reluctant to call the start of another sustained upturn as the rally from the middle of March to the start of June was underpinned by similar signs of a pick-up in activity — but disappointing economic news over the last month quickly altered the prevailing mood.

Neil Mackinnon, chief economist at ECU Group, said he wouldn’t be surprised if risk aversion returned to the markets.

“There are plenty of factors from the Jakarta bombings through to fresh worries in financials,” he said, citing the possible bankruptcy of U.S. commercial lender CIT Group Inc. and the exposure of U.S. regional banks to the commercial real estate market. Swine flu worries may also keep the rally from lasting too long, he added.

Earlier, most Asian markets advanced amid ongoing optimism. Indonesia’s main stock measure fell however after a pair of powerful explosions killed eight and wounded at least 50 people at the Ritz-Carlton and Marriott hotels in Jakarta. The country’s currency, the rupiah, dropped almost 1 percent against the dollar.

Japan’s Nikkei 225 stock average rose 51.16 points, or 0.6 percent, to 9,395.32 and Hong Kong’s Hang Seng was up 443.79, or 2.4 percent, at 18,805.66.

Elsewhere in Asia, South Korea’s Kospi added 0.6 percent while Australia’s market closed up 0.1 percent.

Meanwhile, oil prices rose $1.20 to $63.22 a barrel in European trading.

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AP business writers Pan Pylas in London and Jeremiah Marquez in Hong Kong contributed to this report.