(updates prices and developments, adds more quotes)
By Mike Dolan
LONDON, Feb 6 (Reuters) - Stock market losses deepened in
Asia on Wednesday on pervasive global economic gloom and fears
of a U.S. recession but European bourses stabilised ahead of two
key central bank decisions this week.
With Wall St futures <SPc1> indicating a higher start for
U.S. stocks, the relative calm in Europe was also aided by fresh
merger and acquisition speculation in banking and mining sectors
and some surprisingly upbeat earnings from non-financial firms.
French bank Societe Generale <SOGN.PA>, hit by a massive
rogue trading scandal last month, jumped as much as 7.8 percent
as traders speculated about a potential bid by HSBC <HSBA.L>
ahead of SocGen's planned capital increase. HSBC declined to
comment.
And persistent talk of a bid for miner Xstrata <XTA.L> from
Brazil's Vale <VALE5.SA> also stoked the M&A rumour mill.
France Telecom <FTE.PA>, meantime, reported an
above-forecast 3.1 percent rise in earnings last year and raised
cash flow expectations for 2008.
Nerves about full-year results from European banks continued
to hit banking stocks as Germany's Deutsche Bank <DBKGm.DE> and
Spain's Banco Santander <SAN.MC> prepared to report on Thursday.
Concern about further write-downs of loans and debts sent
Credit Suisse <CSGN.VX> down 4.1 percent, UBS <UBSN.VX> down 3.1
percent and Royal Bank of Scotland <RBS.L> down 2.6 percent.
However, hopes for an interest rate cut from the Bank of
England on Thursday and growing talk that the European Central
Bank will start to signal more concern about slowing growth
helped partly offset the deep gloom over bank outlooks.
"The Bank of England will give a 25 basis point (cut)
tomorrow," said Peter Dixon, UK economist at Commerzbank.
Few expect the European Central Bank to lower interest rates
at its policy meeting on Thursday, but growing evidence that
Europe too is feeling the effects of the U.S. subprime crisis is
stoking speculation of an ECB cut as soon as the second quarter.
The euro <EUR=>, which lost one percent to the dollar on
Tuesday, slipped further on Wednesday.
"People are unsure how the ECB is going to react," said
David Pais, currency strategist at Citi. "Wage inflation is
growing but real economy and survey data in the euro zone is
soft, so it remains to be seen how soon they act."
MURKY OUTLOOK
Renewed anxiety about the world economy was triggered on
Tuesday by surveys showing service sectors in the United States,
Germany, Italy and Spain all contracted in January.
Heavy losses of more than three percent in Europe and Wall
St on Tuesday were matched in Asia earlier and MSCI's measure of
Asian stocks excluding Japan <.MIAPJ0000PUS> was down 3.0
percent ahead of Chinese New Year holidays across the region.
Japan's Nikkei <> and Hong Kong's Hang Seng index
<> lost about 5 percent each.
The domino effect appeared to break in Europe and the
FTSEurofirst 300 index <> was up 0.3 percent by 1300 GMT.
MSCI's world equity index <.MIWD00000PUS> pared sharp losses
earlier and was down 0.6 percent by 1300 GMT.
Energy markets steadied too. The wider concern about global
economic demand saw U.S. light crude futures <CLc1> losing
another $1 to below $88 per barrel early on but they bounced
back later to $88.73
Yet concerns about the relentless stream of weak economic
news was echoed across equity and bond markets and few could see
light at the end of the tunnel yet.
"At the moment we have an asymmetric market, a market that
is chasing bad news," said Alain Bokobza, chief strategist at
Societe Generale in Paris.
S&P futures <SPc1> were up almost 4 point by 1300 GMT,
indicating a firmer start on Wall Street later. Profits from
Walt Disney <DIS.N> and Time Warner <TWX.N> pointed to strength
in earnings outside the financial sector, analysts said.
PRE-HOLIDAY ASIA ANGST
Financial shares such as Mitsubishi UFJ Financial Group
<8306.T> were among the biggest decliners in Asia after Standard
& Poor's on Tuesday warned the ratings of U.S. banks could be at
risk should bond insurers be downgraded. []
But trade was thinner than usual with markets in South
Korea, Taiwan, and China closed on Wednesday for the rest of the
week in what has been a less than festive start to the Lunar New
Year holidays.
"The market is being hit by U.S. recession fears," said
Yoshihiro Ito at Okasan Capital Management in Tokyo. "The impact
of subprime (mortgage) problems is spreading into the broader
U.S. economy."
Gold bounced after falling to its lowest level in almost two
weeks on Tuesday, with spot prices<XAU=> at $893.15/85 an ounce.
(Additional reporting by Rafael Nam, Simon Falush, Sitaraman
Shankar, Blaise Robinson. editing by David Christian-Edwards)
