- The Washington Times - Friday, March 20, 2009

LONDON (AP) - Stock markets were mixed Friday as investors turned cautious amid worries the U.S. Federal Reserve’s latest move to combat recession in the world’s largest economy will lead to rampant inflation.

By noon in mainland Europe, Britain’s FTSE 100 was down 0.4 percent to 3,801.84, France’s CAC 40 fell 0.4 percent to 2,765.47, while Germany’s DAX rose 0.3 percent to 4,053.89.

Banking stocks, which had surged earlier in the week after the Fed announced it would start buying Treasurys to help open up tight credit markets, fell across Europe on Friday. HSBC dropped 19 percent, Barclays slipped 4.4 percent and Dexia lost 9.5 percent.

“I think some of the luster from the announcements earlier in the week has gone,” said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, referring to the Fed’s move, similar measures in Britain, and proposals by UK regulators to strengthen bank oversight.

“I think some questions are being asked along the lines of ‘just how much profit will be taken away from the banks.’ There are still the concerns around the economic situation which continues to overhang the market,” he added. “Until the employment and the housing market are sorted in the U.K. and U.S. it’s going to be difficult to have any meaningful movement.”

Wall Street was set to open lower. Dow Jones industrial average futures slipped 0.2 percent to 7,324. Standard & Poor’s 500 index futures 0.3 percent to 777.60, while Nasdaq 100 index futures fell 0.1 percent to 1,203.25.

In Asia, trade was lackluster in most markets, with Tokyo closed for a holiday, as the region closed out one of its strongest weeks this year with a whimper.

Sentiment took a hit after Wall Street’s rally petered out Thursday. U.S. investor euphoria over the central bank’s aggressive $1.2 trillion plan to buy government bonds and debt securities gave way to fears the new spending could water down the dollar’s worth and lead to higher prices across the board.

Those concerns have pummeled the dollar, which stabilized Friday but was still headed for a 4 percent loss against the yen this week. A weaker dollar is especially unnerving in Asia, where it hurts big exporters in Japan and other countries by eroding foreign income.

While the market may see more upside, analysts were doubtful the current rally could be sustained much longer as long as the financial system remained strained and the global economic outlook grim.

“I don’t think anyone reasonably expects this to be a long-term rally or that we’ve hit bottom,” said Andrew Orchard, Asian strategist for Royal Bank of Scotland in Hong Kong. “The problems with the financial system are still unknown.”

Hong Kong’s Hang Seng led the region’s declines, falling 297.41 points, or 2.3 percent, to 12,833.51, and Australia’s benchmark S&P;/ASX 200 stock index lost 0.4 percent to 3,465.8. Taiwan’s benchmark sagged 1.5 percent.

Stocks in mainland China rose for a fifth day, with the Shanghai Composite index advancing 0.7 percent to 2,281.09 as higher commodity prices lifted metal and mining stocks. For the week, the index rose 7.2 percent.

South Korea’s Kospi climbed 0.8 percent Friday to 1,171.04. Markets in the Philippines and Thailand also rose. Trading will reopen in Tokyo on Monday.

Among the worst performers were financial shares, with Australian investment Macquarie Group dropping 4.5 percent. In Hong Kong, China Mobile, the world’s largest carrier by subscribers, dropped 5.4 percent after its results showed slower growth.

Overnight in the New York, banking and other financial shares also dragged on the broader market, and the major indexes finished down. The Dow Jones industrial average fell 85.78, or 1.2 percent, to 7,400.80.

The broader Standard & Poor’s 500 index fell 10.31, or 1.3 percent, to 784.04, while the Nasdaq composite index fell 7.74, or 0.5 percent, to 1,483.48.

Oil prices eased after surging overnight on a weakened dollar and evidence that OPEC has significantly slowed production. Benchmark crude for April delivery was down 74 cents at $50.87.

___

AP business writer Jeremiah Marquez in Hong Kong contributed to this report.

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