European stocks slip as Wall Street heads for drop after 7 day rally

European stocks slip as Wall Street heads for drop

LONDON — European stock markets dipped Wednesday ahead of an expected retreat on Wall Street as investors paused for breath following a seven-day rally that has sent indexes to their highest levels this year.

In Europe, Germany’s DAX was down 23.62 points, or 0.5 percent, at 5,070.35, while Britain’s FTSE 100 fell 14.58 points, or 0.3 percent, to 4,466.56. France’s CAC 40 was down 13.45 points, or 0.4 percent, at 3,289.44. Despite the modest declines, all three indexes are trading above where they started the year.

U.S. stocks were also expected to open lower soon, with Dow futures down 33 points, or 0.4 percent, at 8,853 while the broader Standard & Poor’s 500 futures fell 3.3 points, or 0.4 percent, to 950.10.

Markets around the world have rallied for over a week on strong U.S. corporate earnings reports from a range of companies, including heavy equipment maker Caterpillar Inc., Apple Inc. and Coca Cola Inc. They were given another nudge by U.S. Federal Reserve Chairman Ben Bernanke, who said Tuesday that the world’s largest economy was seeing some improvement and that interest rates would not rise in the foreseeable future.

The Dow Jones industrial average has enjoyed its best run for two years to go into positive territory for 2009, while major investment banks such as Goldman Sachs and Credit Suisse have raised their year-end S&P target levels to over 1,000. The S&P closed Tuesday at its highest level since last November.

Bernanke will be addressing U.S. Senators later in his second day of Congressional testimony. However, the focus mainly will be on how investors react to another batch of U.S. corporate earnings — particularly from the banks Morgan Stanley & Co., Bank of New York Mellon Corp. and Wells Fargo & Co. as well as GlaxoSmithKline PLC and Pfizer Inc.

“It will be earnings news that takes centre stage yet again today with some more high level readings out of the U.S.,” said Matt Buckland, a dealer at CMC Markets.

In the U.K., the Bank of England said it was still considering whether to pump another 25 billion pounds into the financial system. In the minutes to its latest policy meeting, the bank’s rate-setters suggested they would wait until August to assess the need to create more money.

Like Bernanke, the Bank of England said that while the economy has stabilized somewhat, a quick recovery was unlikely as balance sheet constraints within the banks would continue to limit demand growth.

Despite the recent strong run, investors remain unconvinced of further gains as the March to June rally was predicated on similar hopes about the state of the world economy.

“Clients are caught in a tough situation at the moment; those that are short are adamant a pullback is due and those that wish to buy feel that they have missed out on the move and need a drop before they buy at what they consider to be decent levels,” said Ian Horsley, a financial trader at Spreadex.

Earlier in Asia, markets closed mostly higher, although gains were limited.

Japan’s Nikkei 225 stock average rose 71.14, or 0.7 percent, to 9,723.16. South Korea’s Kospi was up 0.3 percent. Shanghai’s index gained 1.9 percent, Australia’s benchmark advanced 0.4 percent and Taiwan’s market edged up 0.5 percent.

Hong Kong’s Hang Seng added 253.56, or 1.3 percent, to 19,248.47. India’s Sensex shed 1.3 percent.

Oil prices fell in European trade, with the September contract down $1.04 to $64.57 a barrel. On Tuesday, the August contract expired, rising 74 cents to settle at $64.72.

The dollar fell 0.3 percent to 93.33 yen while the euro dropped 0.2 percent to $1.4187.

AP Business Writers Carlo Piovano in London and Jeremiah Marquez in Hong Kong contributed to this report.