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Rate woes worry Europe
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January 19, 2000: 12:59 p.m. ET
London ends down as banks take hit; Paris, Zurich lower but Frankfurt gains
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LONDON (CNNfn) - European markets ended mostly lower Wednesday as higher oil prices raised fears that central banks may boost interest rates to stave off inflation.
Concerns over possible credit tightening in both Europe and the United States hit rate-sensitive financial stocks. Among major markets, only Frankfurt closed higher.
A weak early performance on the Dow and strong U.S. housing data contributed to the perception in Europe that the Federal Reserve may approve an aggressive rate hike in early February to cool off an overheating U.S. economy.
Comments by France's central bank chief, suggesting the European Central Bank pay close attention to euro-zone prices, added to the tense mood.
London's benchmark FTSE 100 finished down 59.2 points, or 0.9 percent, at 6,445.4, above its session low of 6,434.4, with hard-hit banking issues providing much of the downward drag. The Dow Jones industrial average was off 50 points when London markets closed, as traders braced for a rash of earnings reports from high-tech bellwethers such as IBM (IBM), Apple (AAPL), and America Online (AOL).
In Paris, the blue chip CAC 40 finished 0.4 percent lower at 5,649.46, as heavy selling of technology sector leaders more than countered a sharp gain for oil producer TotalFina (PFP).
The SMI in Zurich slumped 0.6 percent, or 47.3 points, to end at 7,336.8, while the leading AEX index in Amsterdam shed 0.8 percent.
On the upside, the electronically traded Xetra Dax in Frankfurt closed 18.92 points, or 0.3 percent higher, at 7,091.04, reversing earlier losses with the help of telecom leader Mannesmann (FMMW). The Mib-30 index in Milan gained 1 percent to close at 41,965, while Madrid blue chips edged up half a percent to 11,120.7.
Benchmark Brent crude was quoted at around $25.91 a barrel, 14 cents off its close in New York Tuesday and 39 cents below a nine-year high of $26.30 reached shortly after the open Wednesday. Fears that OPEC producers intend to maintain strict export curbs past March helped boost energy prices. Forecasts for a long run of cold winter weather on the U.S. east coast also fed worries about tight oil supplies.
Euro-zone government bond yields hit 27-month highs Wednesday before retreating slightly, as traders braced for an expected strong German Ifo business climate survey Thursday.
In London, new economic data showed British joblessness at a 20-year low in December and average earnings growth holding steady. But the news did little to allay traders' expectations of another imminent interest rate hike by the Bank of England. The index had fallen 2.5 percent Tuesday.
Jerry Evans, equity strategist at Enskilda Securities in London, attributed the market's lackluster performance to "secondary evidence suggesting that there's a concern" about higher inflation, rather than any clear quickening in inflation. He added that the recent strength in oil prices added to such concern, as it had already led to higher consumer prices in France and Germany, the euro-zone's two largest economies.
Bank of France Governor Jean-Claude Trichet compounded the rate fears with remarks that the European Central Bank should keep a close watch on rising euro-zone prices. German 10-year bond yields dipped 4.6 basis points to yield 5.6 percent after earlier hitting 27-month highs.
Banks take a beating
Financial stocks declined sharply amid the anxiety over possible rate hikes. Banks alone shaved more than 30 points from the FTSE 100. and HSBC Holdings (HSBA) shed 2.6 percent, or 8.2 points from the blue-chip index, while National Westminster (NWB) retreated 5.2 percent, lopping off 5 points, and Lloyds (LLOY) gave up 3.7 percent, cutting 6.4 points from the blue chip total. Barclays (BARC) posted a 2.7 percent drop.
Among insurers, Legal & General (LGEN) fell 4 percent and Sun Life & Provincial
(SLP) gave up 1.9 percent, wiping out earlier gains. Barclays (BARC) posted a 2.7 percent drop. Prudential (PRU) led the blue chip advancers with a 7.8 percent jump, after Warburg Dillon Read raised its recommendation on the stock to "strong buy" from "buy." On Tuesday, Prudential posted a 61 percent leap in new life and pensions business in 1999 and reported that the number of subscribers to its Egg online banking unit had jumped to 800,000 by the end of December.
Telecoms operators also fared poorly. British Telecommunications (BT-A) ended down 2.5 percent, while Cable & Wireless (CW-), shed 5.8 percent. However, Vodafone AirTouch (VOD), the FTSE index's biggest company by market capitalization, rose 2.2 percent as the mobile-phone operator pursued its hostile bid for Germany's Mannesmann (FMMW). Mannesmann stock shot up 4 percent in Frankfurt; the company said it may reach an alliance deal with France's Vivendi (PEX) before February 7, the date Vodafone's takeover bid expires.
Merchant bank and asset management company Schroders (SDR) tumbled 5.4 percent, the day after agreeing to sell its investment-banking arm to Citigroup (C) for $2.2 billion. The stock had gained 13.5 percent Tuesday. Financial information provider Reuters (RTR) lost 3.3 percent despite a report that it was planning to float part of its Internet investments.
Tesco (TSCO), Britain's No. 1 supermarket operator, ended up 4.6 percent, off earlier highs, after France's leading retailer Carrefour (PCA) dismissed rumors that it was mulling a takeover bid for its British rival. Carrefour stock advanced 1.8 percent in Paris.
Oil giant BP Amoco (BPA), recently overtaken by Vodafone in the U.K. market value rankings, rose 1.4 percent on the back of firmer oil prices, while rival Shell (SHEL) gained 1 percent..
In Paris, a 2.4 percent fall in France Telecom (PFTE) dragged on the blue chip CAC index. Chipmaker STMicroelectronics (PSTM) fell half a percent, while computer consultant Cap Gemini (PCAP) slid 4.6 percent, and telecom equipment provider Alcatel (PCGE) gave up 1.2 percent. A strong oil market helped TotalFina {PAR:PEQ], however, advance 4.7 percent.
In Frankfurt, chemical giant BASF (FBAS) racked up a 4 percent gain after it announced it is moving its global pharmaceutical headquarters to London from Ludwigshafen, Germany. The euro was quoted at just over $1.01 late Wednesday, virtually unchanged from $1.0109 at the close of trade in New York Tuesday. 
-- from staff and wire reports
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