(Updates prices, adds quotes)
By Natsuko Waki
LONDON, Feb 8 (Reuters) - European stocks erased early gains
and Wall Street was set for a weaker start on Friday as the
absence of key corporate earnings reports shifted the focus back
to concerns over the health of the U.S. economy.
The six-month-old credit crisis has hit balance sheets of
major investment banks exposed to the U.S. subprime mortgage
sector, threatening to hit corporate profits and drag down the
real economy.
Such concerns briefly pushed some sectors of Wall Street
this week into a bear market -- a cycle that starts when an
index falls 20 percent from a recent market peak.
While this presents good buying opportunities from a
valuation point of view, investor sentiment remains fragile,
putting the focus firmly on a weekend meeting of Group of Seven
finance chiefs in Tokyo which will discuss policy responses to
the deteriorating economic climate.
"There's still a bit of nervousness," said Neil Parker,
strategist at Royal Bank of Scotland.
"But ultimately I do think that the message is beginning to
filter through that the central banks have acted swiftly enough
to avoid the worst effects of the recent financial market crisis
feeding through into slower growth."
The FTSEurofirst 300 index <> was down slightly on the
day, having earlier rallied 1.3 percent. The MSCI main world
equity index <.MIWD00000PUS> was down 0.15 percent, having hit
its weakest since mid-January on Thursday.
U.S. stock futures were down around 0.5 percent <SPc1>.
Earlier this week, the Nasdaq composite index <>
briefly slid to a level 20 percent below the 52-week closing
high set in October.
Emerging stocks <.MSCIEF> fell 0.2 percent while emerging
sovereign spreads <11EMJ> widened 4 basis points.
ECB TO JOIN EASING CAMPAIGN?
The euro was on track for its biggest weekly fall against
the dollar in 1-1/2 years after European Central Bank President
Jean-Claude Trichet paved the way on Thursday for lower interest
rates this year by stressing downside risks to euro zone growth
prospects.
The euro held near Thursday's two-week low at $1.4469
<EUR=>, before rising briefly to $1.4516. The dollar ticked down
to 107.34 yen <JPY=>.
Trichet's dovish rhetoric has fanned speculation the ECB has
adopted an easing bias. Lower interest rates are negative for
the euro as they would shave the yield premium the euro offers
against other currencies.
Among G7 nations, central banks in the United States,
Britain and Canada have cut interest rates to boost the economy,
while the Bank of Japan and the ECB have held steady.
"The general mood was that only the U.S. policymakers were
doing something, yet the slowdown is global. Thus, at a minimum,
European policymakers needed to start focusing on growth before
investors became less pessimistic," Credit Suisse said in a
note, summing up sentiment of its equity clients.
G7 finance ministers and central bankers are expected to
focus more on downside economy risks than currency issues.
"Rising recession probabilities in the US and Japan are more
imminent threats for the global economy together with continued
financial market stress due to broader deleveraging, subprime
and credit crisis," Goldman Sachs said in a note.
The March Bund future <FGBLH8> was down 11 ticks.
U.S. light crude oil <CLc1> rose 0.5 percent to $88.56 a
barrel.
Gold <XAU=> ticked higher to $913.45 an ounce while platinum
<XPT=> held below Thursday's all-time highs. Palladium <XPD=>
hit a six-year high of $431 an ounce.
(Additional reporting by Rebekah Curtis, editing by David
Christian-Edwards)
