LONDON: Stock markets lacked conviction Friday, with trading mixed around the world as investors turned cautious amid worries the US Federal Reserve s latest move to combat recession in the world s largest economy could lead to rampant inflation.
Britain s FTSE 100 closed up 0.7 percent at 3,842.85, France s CAC 40 climbed 0.6 percent to 4,068.74, and Germany s DAX added 0.5 percent to 2,791.14.
Banking stocks, which had surged earlier in the week after the Fed announced it would start buying Treasurys to help open up tight credit markets, fell across Europe on Friday. HSBC dropped 18 percent, Barclays slipped 7 percent, Commerzbank fell 4.5 percent and BNP Paribas lost 2.3 percent.
I think some of the luster from the announcements earlier in the week has gone, said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, referring to the Fed s move, similar measures in Britain, and proposals by UK regulators to strengthen bank oversight.
I think some questions are being asked along the lines of just how much profit will be taken away from the banks. There are still the concerns around the economic situation which continues to overhang the market, he added. Until the employment and the housing market are sorted in the UK and US it s going to be difficult to have any meaningful movement.
US stocks fluctuated as investors examined Federal Reserve Chairman Ben Bernanke s calls for banking supervisors to pay close attention to compensation practices. In a prepared speech to the Independent Community Bankers of America convention, Bernanke said regulators have observed that poorly designed compensation policies can create perverse incentives that can ultimately jeopardize the health of the banking organization.
In early afternoon trading in New York, the Dow Jones industrial average rose 0.2 percent to 7,418.40, the Standard & Poor s 500 index slipped 0.2 percent to 782.33, while the Nasdaq 100 composite index eased 0.2 percent to 1,480.72.
Initial optimism over the Fed s larger-than-expected buyout plan has faded fast, with the Dow also unsure of which direction to take in early trading today, said David Jones, chief market strategist at IG Index in London. The swift passing by Congress of the proposed 90 percent tax on bonuses at bailed-out firms has provided a further dent in the financial sector s revival.
In Asia, trade was lackluster in most markets, with Tokyo closed for a holiday, as the region closed out one of its strongest weeks this year with a whimper.
Sentiment took a hit after Wall Street s rally petered out Thursday. US investor euphoria over the central bank s aggressive $1.2 trillion plan to buy government bonds and debt securities gave way to fears the new spending could water down the dollar s worth and lead to higher prices across the board.
Those concerns have pummeled the dollar, which stabilized Friday but was still headed for a 4 percent loss against the yen this week. A weaker dollar is especially unnerving in Asia, where it hurts big exporters in Japan and other countries by eroding foreign income.
While the market may see more upside, analysts were doubtful the current rally could be sustained much longer as long as the financial system remained strained and the global economic outlook grim.
I don t think anyone reasonably expects this to be a long-term rally or that we ve hit bottom, said Andrew Orchard, Asian strategist for Royal Bank of Scotland in Hong Kong. The problems with the financial system are still unknown.
Hong Kong s Hang Seng led the region s declines, falling 2.3 percent to 12,833.51, while Australia s benchmark S&P/ASX 200 stock index lost 0.4 percent to 3,465.8. Taiwan s benchmark sagged 1.5 percent.
Stocks in mainland China rose for a fifth day, with the Shanghai Composite index advancing 0.7 percent to 2,281.09 as higher commodity prices lifted metal and mining stocks. For the week, the index rose 7.2 percent.
South Korea s Kospi climbed 0.8 percent and markets in the Philippines and Thailand also rose. Trading will reopen in Tokyo on Monday.
Oil prices eased after surging overnight on a weakened dollar and evidence that OPEC has significantly slowed production. Benchmark crude for April delivery was down 44 cents at $51.17.
-AP business writer Jeremiah Marquez in Hong Kong contributed to this report.