European equities tumble as US stimulus prospects dim

European stocks tumbled Thursday on downbeat eurozone business and consumer confidence and as expectations dimmed that US Federal Reserve Chairman Ben Bernanke would signal fresh economic stimulus.

London's FTSE 100 index dropped 0.42 percent to 5,719.45 points, in Paris the CAC 40 lost 1.02 percent to 3,379.11 points and Frankfurt's DAX 30 tumbled 1.64 percent to 6,895.49 points.

Madrid stocks retreated 1.52 percent as Spain's long-term borrowing costs rose further, while Milan dropped 1.09 percent in value despite another successful Italian bond auction.

The European single currency slid to $1.2502, compared with $1.2526 late in New York on Wednesday.

The dollar slid to 78.54 yen from 78.70 yen late on Wednesday.

A sharp drop in eurozone business and consumer confidence, down by 1.8 points from July to 86.1 points in a fifth consecutive monthly slide, undermined market sentiment.

And unemployment in Germany rose for the fifth month in a row in August in a further sign that Europe's recent growth engine is losing steam.

The DAX also took a hit after shares in automakers fell sharply following analyst notes suggesting the sector was in for a rough ride due to slowing global growth, with Daimler shares dropping 5.53 percent, BMW 4.75 percent and Volkswagen 3.97 percent.

Attention has for days focused on a meeting of central bankers at Jackson Hole, Wyoming, where Bernanke is due to give a speech on Friday, and whether he will signal another round of monetary easing to kickstart the US economy.

However a slew of data in recent days suggesting a slow if steady US recovery has been interpreted by investors as a sign Bernanke would hold off on further stimulus.

"Wednesday's round of positive economic and housing data has dampened the outlook that an additional round of monetary easing will be unveiled in Federal Reserve Chairman Ben Bernanke's Friday address," said Karee Venema at Schaeffer's Investment Research.

US consumer spending rebounded in July after holding flat in June, official data showed Thursday, a crucial improvement for boosting growth in the sluggish economy.

The US Commerce Department reported consumer spending, which accounts for about 70 percent of the nation's economic activity, rose 0.4 percent in July, the strongest gain since February.

"Given the patchiness of US data and the elevated oil price it would seem unlikely that Ben Bernanke will announce a new raft of easing measures in his speech tomorrow especially ahead of next week's jobs report and ISM data," said CMC Markets analyst Michael Hewson.

US stocks were down in midday trading, with the Dow Jones Industrial Average falling 0.75 percent to 13,009.03 points, the S&P 500-stock index sliding 0.71 percent to 1,400.41 points, and the tech-heavy Nasdaq sheding 0.89 percent to 3,053.66 points.

Markets have been on edge for weeks over whether the Fed chairman will act on the sluggish economy.

Bernanke used the Jackson Hole venue the past two years to let markets and policymakers know what is on his mind. In 2010, he moved the markets with his signal of "QE2" -- a second $600 billion quantitative easing programme aimed at pushing down long-term interest rates.

Meanwhile, European Central Bank head Mario Draghi has added to expectations he would resume a controversial sovereign bond-buying scheme.

Writing in the German weekly Die Zeit, he said the ECB would always act within its mandate and ensure price stability, but that it might have to resort to exceptional measures.

Asian markets fell on Thursday, with Hong Kong dropping 1.19 percent, Tokyo falling 0.95 percent, Seoul losing 1.15 percent and Sydney off 0.94 percent.

Source: http://news.yahoo.com/european-equities-drop-eve-bernanke-speech-004218318.html

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