By Veronica Brown
LONDON, April 22 (Reuters) - Stock markets felt the pinch of
banking stress on Tuesday as Royal Bank of Scotland <RBS.L>
unveiled a hefty rights issue, while inflation pressures stayed
on the boil as oil prices neared record highs.
The euro remained below last week's record highs versus the
dollar, with investors focused on further fallout from the
global credit crunch after property lender Dusseldorfer
Hypothekenbank was taken over by the German banking association.
RBS announced a record 12 billion pound rights issue to
cover a potential 5.9 billion pound writedown on the value of
toxic assets and help to rebuild a stretched balance sheet.
Although the rights issue was broadly in line with
expectations, RBS shares shed 2 percent in early trade, while
the FTSEurofirst 300 Index of leading shares fell 0.4 percent
before paring losses as resource stocks rose <>.
"Coming in at 12 billion pounds, accompanied by a dividend
cut and an interim dividend in shares, this (RBS rights issue)
is definitely at the top end of consensus, but is not really a
surprise," said Stephen Surpless, senior analyst at Cantor
Fitzgerald. "As this could be the first in a string of capital
raising moves by European banks, attention could turn to the
next likely candidate."
Europe followed Asia's lead after Japan's Nikkei dropped 1.1
percent, weighed by autos and falling financial stocks on
worries about the U.S. banking sector.
World stocks on a MSCI measure <.MIWD00000PUS> were down
0.18 percent at 383.25.
Investors hoping for a glimmer of recovery were mostly
under-whelmed by a Bank of England plan announced on Monday to
help ease UK mortgage market strains.
Softer than expected results from Bank of America Corp
<BAC.N>, the biggest U.S. retail bank, also added to jitters.
These shattered a tentatively positive outlook on the credit
crisis after stronger U.S. bank earnings last week.
"The whole stock market is twitchy, the financials in
particular, because of the uncertainties going forward of how
the economy and bad debts are going to go," said Peter Vann,
head of investment research at Constellation Capital Management.
Earnings focus is seen turning to non-financials in the
U.S., with results due later from Yahoo, AT&T and Dupont.
OIL UP, EURO FALLS
Inflationary pressures from food and energy costs are set to
stay in focus, with crude oil prices close to record highs near
$118 a barrel.
Oil traders concentrated on geopolitical risks after
pipeline attacks in OPEC member Nigeria last week at a time of
robust Chinese crude demand.
U.S. light crude for May delivery <CLc1> stood at 117.50 a
barrel, after prices set a historic high at $117.83 on Monday.
The euro stayed below last week's record high near $1.60
<EUR=> as concerns about the European banking sector weighed on
the currency despite more hawkish rhetoric from European Central
Bank policymakers.
Germany's BdB banking association has taken control of
Duesseldorfer Hypothekenbank <DUOGg.F> and plans to sell it
after the property lender ran into problems linked to the
financial crisis.
(For details please double click on [])
The euro fell a quarter percent to $1.5867 <EUR=> before
paring the losses. It was steady at 164.14 yen <EURJPY=>.
"I'm a bit surprised the (euro's) fall wasn't deeper... and
now people will be hunting round for other institutions in a
similar predicament (which if they come to light) would lead to
a more significant correction for the euro," said Adam Myers,
market strategist at Credit Suisse.
Falls in the euro have been limited by a view that interest
rate differentials are set to move further in its favour.
The market expects the Federal Reserve to lower U.S. rates
further from the current 2.25 percent at a policy meeting on
April 29-30.
Fresh impetus for such expectations -- which could drag the
dollar lower -- could come from U.S. housing data at 1400 GMT
with the annual rate of existing home sales seen easing to 4.92
million units.
(Additional reporting by Blaise Robinson in Paris and Simon
Falush in London)
(Reporting by Veronica Brown; Editing by David Stamp)
