(Updates prices, adds Wachovia, Wall Street outlook)
By Jeremy Gaunt, European Investment Correspondent
LONDON, July 22 (Reuters) - Weak corporate reports hit
European stocks hard and set up Wall Street for losses on
Tuesday, eclipsing big gains in Japan, while oil steadied as the
threat diminished to U.S. production from Tropical Storm Dolly.
The dollar was steady against major currencies but
short-term euro zone government bonds gained on the volatility
in equity markets.
European shares fell more than 2 percent, battered by a
revenue warning from Vodafone <VOD.L>, the world's largest
mobile phone company by sales, and depressed further by losses
from U.S. bank Wachovia <WB.N>.
The two compounded poor sentiment from disappointing
overnight results from U.S. companies American Express <.AXP.N>
and Apple <AAPL.O>, which reflected the whole nature of the U.S.
economic downturn.
Vodafone released in-line revenues for the first-quarter but
spooked investors by saying it expected full-year revenue to be
around the bottom of its previously stated range due to economic
weakness. Its shares shed 15 percent.
Wachovia said it saw a second quarter loss of $4.20 a share
versus an estimate of $3.30.
The FTSEurofirst 300 index <> of top European shares
lost 1.7 percent.
"I just think good news doesn't appear to make the front
pages at the moment," said Mic Mills, a risk trader at TradIndex
said.
Earlier, Japan's Nikkei stock average jumped 3 percent as
banks caught up with sentiment that the direst projections for
the industry were unlikely to be met.
The bourse was closed on Monday.
The benchmark <> ended up 381.26 points at 13,184.96,
while the broader Topix <> rose 2.8 percent to 1,287.74.
GOODBYE DOLLY
Oil prices, which had been rising after last week's tumble,
were flat with Tropical Storm Dolly looking likely to miss major
U.S. oil and gas installations, easing fears of supply
disruptions from the first big storm threat of 2008.
Forecasters still expected Dolly to grow into a hurricane
before hitting land near the Mexican border later this week and
said it could threaten some coastal refineries later in the
week, limiting the extent of crude's losses. []
U.S. light crude for August delivery <CLc1> was trading flat
around $131 a barrel. It gained more than $3 a barrel on
concerns over Dolly in the previous session.
The dollar was stuck near record lows versus the euro,
pinned by lingering worries about the U.S. financial sector.
"Without any big numbers, it is equity markets that is
driving currencies," said Niels Christensen, FX strategist at
Nordea in Copenhagen.
The euro was steady at $1.5938 <EUR=>, not far from the all
time high of $1.6038 set last week, according to Reuters data.
The euro was slightly weaker against the yen at 169.15 yen,
close to an all-time high of 169.92 set on Monday <EURJPY=>. The
dollar lost 0.2 percent to 106.13 yen <JPY=>.
Euro zone government bonds rebounded, snapping four straight
sessions of steep declines with the fall in European stocks
helping revived appetite for safe-haven government debt.
"We're seeing a setback for stocks and that's offering
support for government bonds with flight to quality trade
supporting the short-end of the curve," said Patrick Jacq, euro
zone interest rate strategist at BNP Paribas in Paris.
The two-year Schatz yield <EU2YT=RR> fell 6 basis points to
4.562 percent, a day after hitting a two-week peak of 4.647
percent. The 10-year Bund yield <EU2YT=RR> was down 2 basis
points at 4.610 percent.
(Editing by Victoria Main)
